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What you should fear in the US shutdown

Hint: It’s not what you’d think.

Let’s let the numbers (and not the politicians) do the talking.

Just since the US government shutdown in 1976, the S&P 500 is up 1475%… not including dividends. That’s about 8%, annualised. Not too shabby!

It’s hard to say that shutdown had any discernible negative effect over the long term.

Now, looking at the more recent 1995 shutdown, Motley Fool columnist Morgan Housel had this to say:

“As pundits talk about the looming damage of a government shutdown, keep this in mind: In the summer of 1995, Jeff Bezos sold his first book out of his garage for a fledgling start-up he called Amazon.com. If you ever get the chance, ask Bezos how much attention he was paying to the government shutdown in 1995. He’ll laugh at you.

Also right in the middle of the 1995 government shutdown, two Stanford students named Larry Page and Sergey Brin met on campus. They started working on a search-engine technology called BackRub. It later became Google.  Ask them how much they were paying attention to the government shutdown at the time.”

That’s all well and good, but what about the very short term? Should you and I worry about the market dipping over the next few weeks?

The greatest thing we have to fear…

In fact, overall data drawn from past instances of US government shutdowns shows that, about 65% of the time, the US stock market is POSITIVE just a month after a shutdown.

In other words, there aren’t only few identifiable negative long-term effects on the share market… It’s not at all clear we’re in for any negative short-term effects either.

Not that Foolish investors would bother trying – we’d rather try to guess when the next Labor recrimination is coming. And that’s saying something!

When I say you’ve got something legitimate to fear about the US shutdown, it’s not got anything to do with Mr. Market.

It’s with the bad advice you’ll get from just about everyone else!

Panic! Panic! Sell! Sell!

Any bump or ripple in the economy or the political landscape, and instantly, there are loud voices encouraging you to sell every last share you own and run for the hills…

At least until the ‘crisis’ is over.

Which is just when the next ‘crisis’ is due to come along.

This isn’t a strategy, Fools, it’s a tactic… and a terrible one. The age-old truth is, fear sells.

And remember, the ‘good news’ newspaper went broke! When you see the ‘headlines of doom’ just ask yourself: “Why are they trying to tell me this?”

Likewise, if you panic and sell shares, that generates sales for your brokerage. It’s a favourable scenario… for them. Not so much for you.

You can’t give into fear, Foolish investor. I can’t either. It costs too much. It’s too big a mistake. (More of this below, so I hope you’ll read on!)

Instead, we’ve got to keep our eyes trained on the long term. The same long term that’s produced a 15-bagger from the S&P 500 since 1976 – before dividends!

Which brings us to a crucial question…

What’s YOUR long term?

Like me, you’re hopefully investing in shares for the long term… So my question is this: How do you personally define the ‘long term’?

Five years from now? 10 years out?

Generally speaking, by age 65, you can access your super. Or earlier, even, if you’ve retired from the workforce and reached ‘preservation age.’

Just now, I asked a few colleagues this question: “What’s your long term?”

“2100,” said one joker.

“2033,” said another. “Sooner if I win the lotto.”

In any case, I’d encourage you to pull out a calendar and figure out which year you’re investing toward, whether 2033 or 2100 or somewhere in between.

This can help you stay focussed on your investment goals – and help you keep from panicking about the big, screaming ‘crisis’ du jour.

(By the way, it turns out the Fool who nominated 2100 wasn’t actually joking. As he said, “If you have the resources, time, patience and foresight to be planning not only for your retirement but for your family’s future, why wouldn’t you be looking that far out?”

Now that’s Foolish!)

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