Will the stock market contract? That is the wrong question – Twin

For most investors in the stock market, the past five or 10 years has created a pleasant tailwind of growth — they even may have been one of many blessings you counted at Thanksgiving. But switch

on today’s business news and you can see why stock market investors have been climbing the proverbial “wall of worry.” There are so many headlines creating market distortions, from concerns over infrastructure spending and inflation risk, to underemployment and supply-chain issues, to unpredictable COVID developments. Do these trends suggest that the stock market is headed for a contraction?

The most truthful answer to this question, at least in the short run, is “We don’t know.” No one can consistently predict where the stock market will be 12, 24 or 36 months from now. There are too many factors that impact the market, from elections and geopolitical events, and from tax-law changes to energy costs. Each of these events can move the market over the short term.

TIME HORIZON IS KEY TO WEATHERING A STORM

Instead of focusing on months, you should be asking yourself, “Where will the stock market be in 10 to 15 years?” If you think it will be higher than it is today, then you shouldn’t be too worried about your longer-term money’s exposure to the stock market. Although past performance is no guarantee of future results, we’ve seen historically that buying stocks of smart, innovative and well-run companies has led to desirable returns for investors with a long-term time horizon.

So, instead of succumbing to fear-mongering and doom and gloom, we advise our clients to keep their short money short and their long money long. This means if you have a financial need within the next few years, such as buying a home, paying for college, or taking a dream vacation, you probably should not have this money in stocks. On the other hand, if you are investing in your workplace retirement plan, and have decades until you need to spend your savings, then a healthy allocation to stocks could be appropriate, depending on your individual circumstances.

DIVERSIFICATION IS MORE IMPORTANT THAN EVER

Not only should you diversify your assets based on their time horizon, you also need to consider how your portfolio is structured to pursue financial goals. With stocks reaching new highs, and interest rates remaining low for the foreseeable future, there are more risks in the financial system than there have been in some time. As always, we believe your overall level of diversification (that is, how your money is spread across stocks, bonds, and cash) may account for the majority of your portfolio’s risk and return.

You also shouldn’t assume that the types of investments that worked for you so well during the long bull market necessarily will perform the same way going forward. Instead, companies that are geared to the emerging new global economy may be better positioned to appreciate. Now is the time to think about making…