People always seem to stress about something when it comes to investing. In hindsight many of the worries are just that, worries. It's not until you can look at the situation in a rearview mirror that you realize whether you had something to worry about or not.
Most recently, crude oil prices spiked to $100 a barrel because of concerns about supply disruptions amid revolts in Libya and other parts of the Middle East. Countries around the world struggle with social unrest or financial problems on any given day. Last year, people staged riots in Greece to oppose tax hikes and cuts in wages and pensions designed to reduce the country's large deficit. Worries that Greece could default on its debt put the euro currency—shared with 16 other European countries—at risk.
Plenty of past events have sparked nervousness in the markets, including the Cuban missile crisis, Watergate, World War I and II, the Korean War, the Vietnam War, the September 11 terrorist attacks, and the BP oil spill in the Gulf of Mexico last April. When these events first happen, some investors react by selling investments. After a while they might realize they made a hasty decision and let worries about world events get in the way of their investment plan.
These days there are lots of things to worry about including rising oil prices, President Obama's tax policy, the ballooning deficit, and the impact of the new health care bill. There are still lingering concerns about the Federal Reserve's quantitative easing programs, which involve the Fed buying government bonds from banks and other institutions. The concerns about QE2—the second round of quantitative easing announced in November 2010—are that these bond purchases won't help revive the economy and inflation could perk up.
Meanwhile, some experts continue to worry that the U.S. economy could slip into a double-dip recession. Essentially, economic recoveries can go through a period of pause before hitting the second phase of the recovery. For now, while U.S. debt has increased, the deficit as a percentage of GDP is still lower than most countries.
No matter what stage the economy is in, investors should understand that uncertainty always exists in some form in the markets. Market analysts love to predict if stocks will go up or down, but no one really knows for sure. Some analysts pay close attention to trends and movements of certain indexes and measures of the markets (known as technical analysis) and come up with their own conspiracy theories. One that got attention last August was the "Hindenburg Omen," which indicated that a stock market crash was coming soon. Thankfully, this time it was wrong. (Actually, this omen has predicted many more stock market crashes than have actually occurred.)
All of the worrying and nervousness about events going on around the world shouldn't stop investors from creating their financial plan and sticking with it. A revolt in another country or ongoing wars shouldn't prevent you from saving for retirement or cause you to change your investment strategy. The point is, there will always be something to worry about. I'll explain exactly what you should be worrying about in a future post.
Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice with locations coast-to-coast. He's also host of The Mutual Fund Show, a call-in radio program broadcast across the country. Bold is author of the book The Bold Truth about Investing (April 2009). Bold is Chief Investment Officer of The Mutual Fund Research Center, an SEC-registered investment adviser, which provides mutual fund and asset allocation recommendations, and research to stores in The Mutual Fund Store system.