Jonathan Clements writes on his blog that today\u2019s economic problems won\u2019t lead to nuclear war. But many folks seem to fear the economic equivalent: that we\u2019ll suffer a downward GDP death spiral that sends us back to the Stone Age. Let\u2019s face it: If the economy ceases to function, it won\u2019t matter what you own. What if the economy recovers, which everybody\u2014except your crazy uncle\u2014expects will happen eventually? Stocks will go up.<\/p>\n
In other words, owning stocks is an\u00a0asymmetrical<\/a>\u00a0bet. As with bonds and cash investments, the most we can lose in the stock market is 100% of our investment. But with stocks, your potential gain is far larger. In fact, it\u2019s infinite. To be sure, we haven\u2019t yet reached infinity but we\u2019ve been doing pretty well.<\/p>\n True, there have been periods\u2014like today\u2014when you would have been better off avoiding stocks and instead of going long cash, hand sanitizer and toilet paper. But these periods typically don\u2019t last more than a year. Indeed, to profit from a stock market downturn, you need to be right not only about the direction of share prices but also in your timing<\/a>.<\/p>\n History tells us that almost nobody is consistently smart enough or lucky enough to succeed with such bearish bets. That leaves the rest of us to do the sensible thing, which is to play the lopsided odds offered by the stock market\u2019s asymmetrical bet. Over time, we should allocate as much as we prudently can to stocks, knowing that we\u2019ll suffer occasional rough patches, but also knowing that the stock market\u2019s long-term direction is up. That doesn\u2019t mean we should stash everything in stocks. If we have money in our portfolio that we\u2019ll need to\u00a0spend soon<\/a>, that should be in conservative investments, so our spending plans aren\u2019t derailed by plunging share prices. Similarly, if we\u2019re\u00a0nervous<\/a>\u00a0investors, we might keep more in bonds, so our portfolio\u2019s short-term performance is less erratic.<\/p>\n Clements doesn\u2019t know which stocks will fare best in the months and years ahead. Some companies\u2014both privately held and publicly traded\u2014will never recover from today\u2019s economic shock. Indeed, with any single individual stock, we could end up on the wrong side of the asymmetrical bet and lose 100% of our investment. Even entire national stock markets (hint: Japan<\/a>) can struggle for decades. But those who bet on the global stock market for the long haul have never lost 100%. For these investors, the asymmetrical bet has always been a winner. After every stock market decline, share prices globally have recouped their bear market losses and then headed higher. Every single time. Want this upward trend to be your friend? The formula is very simple: Buy stocks. Diversify broadly. Wait patiently.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Jonathan Clements writes on his blog that today\u2019s economic problems won\u2019t lead to nuclear war. But many folks seem to fear the economic equivalent: that we\u2019ll suffer a downward GDP death spiral that sends us back to the Stone Age. Let\u2019s face it: If the economy ceases to function, it won\u2019t matter what you own. […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[74],"tags":[],"_links":{"self":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/988"}],"collection":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/comments?post=988"}],"version-history":[{"count":1,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/988\/revisions"}],"predecessor-version":[{"id":989,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/988\/revisions\/989"}],"wp:attachment":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/media?parent=988"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/categories?post=988"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/tags?post=988"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}