The Danger Overlooked By Most Long-Term Investors

global investingMy Comments: I often tell my clients that if I did have a crystal ball, we’d not be having this conversation as I would probably be vacationing in the south of France. Or somewhere warm.

So going into 2014, there are lots of the usual questions including the memorable one in the media these days, namely “…will 2014 be as good for stocks as was 2013?” And the answer is… a resounding silence

All any of us can do is attempt to have an intelligent diversification with an emphasis on what most of us think is likely to happen.

By Eric Parnell | Jan. 9, 2014

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. stocks enjoyed a memorable year in 2013. And this advance was just the latest in an impressive string of virtually uninterrupted gains for the stock market since bottoming amid crisis in early 2009. While impressive on the surface, the resoundingly positive results from last year are unfortunately built upon a fragile foundation. And these gains have come at a juncture in the market cycle that may now be subjecting long-term investors to far greater risk on the horizon than they may realize.

Overall, the U.S. stock market as measured by the S&P 500 Index (SPY) advanced by +30% last year. These robust returns took place in an environment where corporate revenue and earnings growth were virtually non-existent. This is problematic due to the fact that year-over-year trailing earnings growth is highly correlated with year-over-year stock market returns.

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