One of my goals with this column is to simplify complex financial markets. Market technicians attempt to explain their analyzes and forecasts using data and charts. But if you talk to fifty economists, you’ll get 100 different opinions.
My simplest description of the current market is that it is driven by fear and anxiety and is on the verge of panic.
We all remember this fear every time we pass a gas station. The displayed price per gallon is a direct reminder of how quickly purchasing power has declined. And not just at the pump, but almost everywhere we spend our hard-earned money.
Add to that the rapid fall in investment account values and it’s easy to see why the financial mental health of so many people can be described as worrisome.
Whenever my emotions creep into my thoughts, I take a deep breath and think about two things; the history of financial markets and today’s longer life expectancies. Historically, this is not our country’s first battle with inflation and market downturns. And although government officials initially characterized the inflation as transitory, they now realize it is much more than a side effect of the pandemic.
In fact, it’s likely to be with us for a while, and it’s a stubborn, global problem. From the late 1800s through the 1970s, our country experienced the pain and discomfort of inflation. It’s something that never really goes away.
Historically, we have been successful in managing inflation and minimizing the negative effects. Unfortunately, there are no apparent signs that the initial steps taken by government officials have done anything to help him. Therefore, fear and anxiety continue to exist.
Account values are a far cry from where they were at the end of 2020. Some blue chip stocks are doing better than tech stocks which have fallen. But they are all well below last year’s highs. Likewise, most bonds are down and money in the bank only earns minimal interest.
Right now, in the midst of a major downturn, it’s hard to find a ray of sunshine. But in bear markets, I’m reminded how important long-term investing is. Although there are no guarantees in life or finances, I am optimistic that I will live well into my retirement years. And I believe all investors should consider that time is on their side.
Few nest eggs are built by hitting the lottery or speculating on bargains. However, letting your emotions take over and abandoning long-term investments in the middle of a recession can certainly ruin a nest egg.
History and my own optimism tell me that the financial sun will eventually reappear. When it does, many will regret bailing out their investments or missing out on the opportunity to invest more at heavily discounted prices.
I don’t call the opportunity to “buy low” a ray of sunshine. But remember that equity investments represent ownership. And right now, there are a lot of good, solid, profitable, innovative companies that are recalibrating to keep up with inflation.
I am confident that somehow we will find our way through these difficult times. And, ultimately, investors will be rewarded for not running away from inflation and a tough investment situation.
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