Are US Stocks a Sure Thing?

The drive to restore investment portfolios to the levels set before the Great Recession is still influencing investor decisions.

In past blogs, I’ve expressed concern the economic downturn would make people more vulnerable to get-rich-quick schemes.   A recent chart published by The Economist,  A Multitude of Madoffs, showed the SEC  filed more than twice the number of Ponzi scheme cases in 2010 as they did in 2008;  and the FBI is currently investigating 1,000 cases of investment fraud.  The temptation to invest in something that sounds too good to be true is much greater these days.

For others, the feeling that they should re-position their investments for a faster recovery is equally tempting. 

After the rise of US stocks in the fourth quarter of 2011, many articles have been written about the expected out-performance of US stock market returns for 2012, especially given Europe’s continued struggle with their sovereign debt crisis and the recent rating agency downgrades of the debt of France, Italy and others.  But are US stocks certain to have higher returns than stocks in other countries?

Here at TAAG, time and experience have taught us that anytime something becomes the consensus, it’s time to be skeptical. 

International stocks fell out of favor in the late 1990’s when US telecom and technology stocks were on an upward trajectory that seemed limitless.  When the technology bubble burst in early 2000, real estate, emerging market and large international funds supported our client portfolios with positive returns.  Investors moved to real estate and real estate funds in 2005 and 2006 after experiencing losses in stocks, only to watch real estate values begin to fall in 2007.  When the Great Recession hit and the US market fell severely in October 2008, some investors chose to exit stocks entirely, relying on reports that the United States was in for an extended period of losses similar to the Great Depression.  They left in time to miss the 25% gain in the S&P 500 in 2009, and the 70% gains in US small value stocks. 

There is always someone willing to tell us where the market is headed.  When it becomes a chorus of agreement, that’s when it may be time to tune them out.

Jeannette A. Jones, CPA, CFP ®