How bad are the markets?

So often someone comes up to me shaking their head and says, "Wow, what a lousy market! What do you make of it?" I'm usually stunned not just because most U.S. markets at are all time highs but what they've been doing wrong. I'll usually respond with "How are you invested?" And more often then not I find that they're not. They're sitting in cash (money markets, savings accounts, CDs) earning almost nothing.

I can see why they're depressed. For them the market has gone nowhere and in inflation terms it's actually declined. But if you had invested in the stock market on President Obama's inauguration day almost 8 years ago you would have tripled your money! Tripled! Instead, too many "investors" cashed in their investments (resulting in a capital gain tax obligation) and have been sitting it out.

What's worse is that these people are angry that interest rates are so low. One of the strongest engines for economic recovery is low interest rates but they want rates to go up so that they'll get a percent or two down the line. This is incredibly short-sighted and a losing effort.

The other argument I get is from those who actually have witnessed the market reaching new highs. They're so afraid that they've missed the boat that they prefer to wait for a correction. They promise they'll dive in when prices fall. But human nature says they won't; they'll be too fearful. And their money will still yield them a negative return when inflation is considered. The lesson, as always, is to have a long-term perspective, to stay the course and to ride out the bumps in the road. Diversification will make that easier.