Depending on your age, time horizon, and goals, in general, yes, investing in the stock market is still a pretty good idea. Generally, and looking historically, that is. However, inflation is a wildcard these days. So many other things are causing volatility in the market that we would not recommend putting everything in stocks right now—or ever, actually. You might want to check our recent blog posts on inflation and interest rates to see how those are affecting the markets. Everything is changing quickly!
So, here’s the thing. Suppose a person is coming into an inheritance or has just experienced a liquidity event like selling a business or retiring with a healthy Boeing pension lump sum. In that case, they might want to start with getting allocated by a professional financial advisor. Without a guiding hand, the newly retired breadwinner might get their investing ‘wrong’ and need to have their portfolio rebalanced. By that, we mean that with an unexpected cash infusion, the other assets suddenly represent a smaller percentage of the holdings, which may or may not fit the investor’s profile anymore. The wealth management formulas aren’t so cut and dried any longer.
Game changers
The Fed (Federal Reserve) might say, “Hey, we’re going to back off on raising interest rates. Instead, we’re going to put together an infrastructure bill.” You’re prepared. You think you know what to do. On the other hand, there could be a “Black Swan” event that no one saw coming.
From Investopedia, a Black Swan is “an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black Swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.”
Just missing those big adjustments in the market by even a few days can make a scrambled mess of your tidy nest egg. The 2008 recession might be a not-so-good recent example. Or some readers might be old enough to remember the dot-com bubble that burst in 2000. Investors of all ages are pulling out recently grayed hairs from the current market turbulence. Hardly anyone seems confident anymore. What should people do, then?
Our “crystal ball” is in the shop.
With all the uncertainty—geopolitical war, inflation, interest rates, climate change, violence, supply chain disruptions, and won’t-it-please-go-away Covid—there are many reasons not to park money in the stock market. But that doesn’t mean one should pull it all out of the market, nor does it mean not investing in stocks at all. You have to do some. How much is ‘some’? If so, what does one buy? What types of stock? What sectors? Which exchanges? Again, what is the age of the investor? Does a 60-year-old buy stocks? Seventy? Eighty?
Is buying emerging market stocks a good idea? Probably not. But we advise people to begin filling some of the buckets in their allocation. When things are uncertain, many things, including stocks, go on sale. You know. “Buy low, sell high” However, this time, nobody wants to risk buying in the event the stocks drop even lower.
The time horizon is one key, and the money’s use is the other. If someone is putting money into the market just to take advantage of the lower prices right now, and that cash was earmarked for a down payment on a home two years from now, then the stock market isn’t the correct tool for the job. We like to make sure people are using the suitable investment instrument for its intended purpose. Stocks could be the appropriate “bucket” for long term retirement savings. Plus, the stock market could be the appropriate place for part of one’s retirement portfolio if the date is pretty far away.
Bottom line?
Stocks may not be a good place to put money if a person is saving for a car or hoping to put a down payment on house in two years. It’s gambling with your and your family’s future. But the next six months might change. Keep coming back to this site for updates and appropriate ways to calculate your net unrealized appreciation as world events challenge our abilities to stick with our investment strategies. Wise advice: Don’t panic.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance reference is historical and is no guarantee of future results
Invest involves risk including loss of principal.