Should I Be In The Stock Market?

For the average investor, this week was like going to the dentist office, something that I did this week. This week was filled with news media hype about how bad things are and computer program trading that gyrated investments. This week, I was asked this question by my favorite client. First is the info from Vanguard. Last is some trivia on the Tomb of the Unknown Soldier.

What was very significant this week but not reported was something that probably will never happen again. This event was the 10 year US Treasury Bond went below 2% which suggests that we are on the verge of a depression, which does not make sense.

To answer the question, it depends. A short term investor, less than 6 months, the answer is to always be out of the stock market and in cash. For a longer term investor the answer is yes. I will explain below. The key to the answer is that an investor must invest in something that beats inflation.

Vanguard

Volatility in the financial markets dominated the news, as the U.S. economic outlook and Europe's fiscal woes weighed on investors. Economic reports didn't help matters—two regional manufacturing surveys reported glum results, housing remains in the doldrums—despite positive news about national production and future economic activity. For the week ended August 19, the S&P 500 Index fell 4.7% to 1,124 (for a year-to-date total return, including price change plus dividends, of about –9.5%). The yield on the 10-year U.S. Treasury note slipped below 2%, its lowest level since at least the 1960s. Stressed investors often flee to Treasury securities, which has the effect of lowering yields. The note's yield for the week dropped 17 basis points to 2.07% (for a year-to-date decline of 123 basis points).

Should I be in the Stock Market - Long Term Investor

My answer is that the Stock Market is one of the only places to invest. Let's look at the options and remember that a long term investment must beat inflation, historically 3%.

Treasury Bonds: With bonds below the historical inflation rate it does make sense to invest unless the inflation rate for the next 10 years is going to be negative, illogical. Currently, the inflation rate is about 2% per year. Also, a stock that pays a dividend of 3% is a better option right now.

Gold: At $1850 per ounce this seems like an unsustainable level.

Cash or Money Market Funds: At less than 1% it is lower than the inflation rate. An investor will only stay in cash for a short period when fear is prevalent.

The bottom line: When the craziness ends, cash will come out and invest. The only place that makes sense for it to go is the Stock Market for a rational long term investor. My belief is that prudent long term investors are buying stock not acting in fear.

Tomb of the Unknown Soldier - History

On March 4, 1921, the United States Congress approved the burial of an unidentified American serviceman from World War I in the plaza of the new Memorial Amphi-theater. The tomb’s design was selected in a competition won by architect Lorimer Rich. The sculpture was by Thomas Hudson Jones.

The white marble sarcophagus has a flat-faced form and is relieved at the corners and along the sides by neo-classical pilasters set into the surface. The stone was quarried in Marble, CO from the Yule Marble Quarry. The tomb was fabricated in Proctor, VT. In the east panel that faces Washington, DC are sculpted three Greek figures repre-senting Peace, Victory and Valor. Inscribed on the western panel are the words – “Here rests in honored glory an American soldier known but to God.”

The six wreaths carved into the North and South sides of the Tomb represent six major battles of WW I - Ardennes, Belleau Wood, Château-Thierry, Meuse-Argonne, Oise-Aisne and Somme. West of the Tomb are the crypts of Unknowns from World War II, Korea and Viet Nam. The Unknown from Viet Nam was later identified in 1998 through DNA and was removed and buried in his hometown. This crypt remains empty.

Because of age and weathering, cracks have begun to ap-pear on the Tomb. In 2009, it was announced that the long 28.4-foot and the 16.2-foot cracks would be re-paired.