Record high inflation and negative economic growth, as measured by US GDP growth, have fueled recession fears. The bond market is similarly flashing recessionary signals. Despite this, the S&P 500 through Friday, August 5, 2022, has rallied 13% higher than its June 16 bear market low1, making the current environment a head-scratcher for many.
When volatility strikes and stock markets decline, it can rattle even the most experienced investors. As behavioral science tells us, the pain of an investment loss is felt more keenly than the enjoyment of an investment gain. The urge to soothe the sting of short-term losses can lead to hasty decision-making that could be costly in the long run. Staying invested and focusing on the things you can control may be your best bet during challenging markets. Here are three actions you can consider in the short term to enhance your long-term investment approach.
Investing seems easy when markets rally and are generally calm. But markets don’t just move up or in a single direction. Markets adapt, gyrate and create new cycles with each being slightly different than the one before. It’s during the more tumultuous periods of a market cycle when investing is hard. How investors confront the challenge of downturns determines the outcome and success of portfolio performance over the long run.
Milton Friedman famously declared that inflation is “always and everywhere a monetary phenomenon”. While it’s hard to disagree with a legendary economist, monetary economics don’t quite capture real life and how we’re feeling today. Inflation hurts all of us, and it can profoundly influence our expectations and behaviors. For many, inflation brings back 1970s-era memories of long lines at gas stations and ballooning mortgage rates. If inflation persists for too long, it can spur people to make panic or bulk purchases which can drive prices even higher. We haven’t seen this scenario play out yet because the US economy is slowing and reducing demand.
Stock market losses occur for various reasons. Sometimes they are driven by excessive market valuations after an extended bull market. In others, they may be due to external events, such as a war or a pandemic. A look back at the worst years for US stocks provides perspective on how long a selloff can last and shows that even the worst years come to an end.
In a robust real estate market, most homes should go pending within a set window of time. A knowledgeable agent can easily provide the average time a home is available. If a home does not sell during that time, there are four common reasons the home is still on the market.
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