With increased inflationary pressures, increases in interest rates, and talk of a slowing economy, we feel it would be helpful to review some key points. Maintaining proper perspective can help us overcome any anxiety or discomfort we may feel and take a thoughtful approach to our investment decisions.
We’ve compiled our answers to four common questions we’re fielding from our clients and our answers to each below.
1. Will we go into recession?
This may be surprising to hear, but the answer is this: It doesn’t matter.
Recessions are historically hard to predict. We can’t predict when they will happen, how long they will last, nor how the market will respond. And since the market tends to anticipate things, the market may have already bottomed by the time we are in an official recession.
It doesn’t matter because we don’t know how things will respond. And therefore, any financial decision based on recessions is akin to speculating.
2. What about interest rates increasing?
Longer-term interest rates have gone up a lot this year already. Interest rates, like the stock market, are forward-looking. So even if the Fed increases short-term rates as they plan, that doesn’t mean long-term rates will continue higher – bond markets already have many interest rate movements in the price.
The reality is that the Fed is taking away the proverbial punch bowl. Things will tighten up. Maybe that will push us into a recession, maybe not. As I mentioned above, people cannot predict that, so it doesn’t matter.
3. My investments are down in value. What should I do?
It is important to remember that we own high-quality companies. We do not invest in the price movement of a stock. We invest in the underlying company. Day-to-day changes in the value of your accounts only reflect how people feel about the underlying stocks at any point in time – which is why they can fluctuate so vastly.
The market is a mood barometer. Fluctuations in portfolio values do not represent a change in the quality of the companies you own, the dividends they pay, or their potential.
4. What if the stock market goes down more?
That is a possibility. If they go down substantially more, we will buy more high-quality stocks at a lower price. They’ll be on sale!
We have ample money in cash and bonds that are available for a stock market “sale.” We all want to buy low. Easier said than done. But that is the plan.
It can be painful to watch in the short term, but history has demonstrated that investors who stay the course and take advantage of stock market losses are rewarded in the long term.
Want to learn more about investing during turbulent times? Click here to see our webinar, “Our Brains, Mind Games & Investing.”