April 26, 2021 | Investing
Today, we’re sitting down with LifeGuide Partner and Chief Investment Officer, Zak Lutz, to answer some of the most frequently asked questions we receive. This is the fifth part in our six-part Q&A series.
A: To begin unpacking this question, it’s helpful to acknowledge the fear often living behind this question. When the market is low, it can feel scary and unsettling as we watch the numbers in our accounts go down. Yet, when the market is relatively high, it can also feel scary and unnerving as we question whether the growth is sustainable or wonder how high it can really go.
These fears are certainly understandable, though not necessarily well founded. It can be helpful to realize what drives the market and that it is more rational than it can seem.
The market is largely driven by the expectation of what future company earnings will be and how valuable those earnings are in today’s dollars.
In other words:
If the growth of earnings is expected to go up in the future, the stock market will go up today. (Assuming inflation expectations don’t change.)
The stock market is predictive, not perfect.The stock market isn’t concerned with what’s happening now, it’s making a prediction on what things will look like in six months, a year, or even two years from now. The reason it can seem irrational is that it doesn’t always get it right.
One way to think about the stock market’s predictive nature is this:
Say you want to buy a house. You also recently learned that a new factory is going to be built in your town next year. This new factory will bring a large influx of new people to town, all of whom will need a place to live. Naturally, you would predict that, as the demand for housing increases next year, housing prices will go up. Yet everyone else who may be in the market to buy a house has also heard this same news. They may draw the same conclusions as you and also believe it’s smarter to buy a house sooner rather than later. In this scenario, it’s likely that house prices increase in the near term, even though factory construction won’t begin until next year. You would be okay paying a higher price now because you anticipate even more demand—and higher home prices—next year.
Now, that factory may or may not actually be built in the anticipated timeframe or impact the town’s housing prices as you planned. It’s possible that the assumptions and economics of your purchase may not work out as you predicted they would in the near term.
The stock market is similarly predictive. And it is currently predicting higher company earnings causing prices to rise today.
Here are some of the factors we’re seeing behind the expectation of higher earnings:
Bottom line: The stock market is predictive, not perfect. There are many factors behind projected increased earnings for 2021; factors which may or may not play out as predicted.
You have important questions, and we want to get you answers. We offer everyone a complimentary, no-strings-attached Exploration Meeting where we get to know each other, understand what you’re looking for, and answer all of the questions you have. In preparation for our conversation, we ask everyone to first complete a short five-minute, online Intro Questionnaire.
Once we receive your submission, we’ll reach out to schedule your complimentary Exploration Meeting. Type in your name, email, and preferred phone number below to get started!
The topic of long-term healthcare can be complex, time consuming, and, quite frankly, not a lot of fun. We’re here to help.
We are Dave Ramsey ELPs for long-term care, as well as SmartVestor Pros. We offer all of Dave’s fans a complimentary, no-strings-attached LTC Exploration Meeting where we will take the time to know you, answer your questions about LTC, and provide quotes and recommendations tailored specifically for you.
To prepare quotes for you, we ask that you complete a short three-minute online LTC Questionnaire.
One we receive your questionnaire, we will shop your case to multiple insurance companies, prepare quotes, and reach out to schedule your LTC Exploration Meeting. Type in your name, email, and preferred phone number below to get started!
You’ve come to the right place! Our Managing Partner, Doug Denlinger, is a SmartVestor Pro as well as a Dave Ramsey Endorsed Local Provider (ELP) for long-term care insurance.
Like Dave, we believe that financial peace is a critical component to leading your most impactful, fulfilled life—the life you are called to live. And we want to help you get there. Which is why we offer all Dave Ramsey fans a complimentary, no-strings-attached Exploration Meeting where we answer your questions and get to know each other.
In preparation for our conversation, we ask everyone to first complete a short five-minute, online Intro Questionnaire. Once we receive your submission, we’ll reach out to schedule your complimentary Exploration Meeting. Type in your name, email, and preferred phone number below to get started!