World-wide economic uncertainty and an unbelievable disconnect between Main Street and Wall Street shouldn’t mean sitting out of the market.
Thousands of people turn to Google every month to ask if now is a good time to buy stocks. It’s a loaded question, and it depends more on your investing goals than it does on what the market is doing on a given day.(Nerdwallet 2022).
If you're ready to invest and don't need the money for at least five years, then yes, jump in. Even when the market has lows — and 2022 is off to a rocky start — if you're invested for the long term, you'll have time to recover losses.
Here's an example: In late February 2020, the S&P 500 began a historic decline, ultimately finding the pandemic floor on March 23, 2020, and starting a bear market. Historically, it has taken an average of about two years for the market to recover from a crash; this time, it bounced back in just 149 days. By the end of August 2020, the index was once again hitting record highs.
In 2021, and the stock market was still being roiled by unexpected events (we won’t soon forget the GameStop-Reddit-hedge fund saga) and the U.S. economic outlook remained unclear. Still, the U.S. market grew 9.5% in the last quarter of 2021, according to Morningstar.
In 2022, investors are understandably wary. Record-high inflation, the ongoing pandemic, the Ukrainian conflict and interest rate increases have all caused volatility, with the S&P 500 falling into a bear market on May 20. But that shouldn’t mean sitting out of the market.
Institutional v's Retail
The market’s rapid recovery in 2020 was clearly at odds with the U.S. economy. But a closer look shows this imbalance may not be as perplexing as it seems.
The stock market reflects investor sentiment about the future, not what’s happening right now. While retail investors (individuals) might be more inclined to buy and sell based on daily headlines, institutional investors (companies, like banks and wealth management firms) are looking far ahead, meaning the stock market's performance may not always match up with current economic conditions.
The S&P 500 is also market cap-weighted, meaning larger companies will have a bigger impact on its performance. Many of the largest companies in the index are in tech — an industry that wasn't hit as hard by COVID-19 in the first two years — and those companies pushed the S&P 500 to its record highs, despite the ongoing economic issues caused by the pandemic. Now, those same companies could be a major factor in dragging down the index (even if some economic indicators are positive) as investors grow less confident in those same tech stocks.
Timing the market vs. time in the market
When you start investing isn’t as important as how long you stay invested,
The best way to build wealth is to stay invested, but I know that can be challenging.
It’s easier if you invest only for long-term goals. The reason you don't invest money you may need in the next five years, is because it’s highly possible the stock or mutual fund you purchase will drop in value in the short term. If you need those funds for a large purchase or emergency, you may have to sell your investment before it has a chance to bounce back, resulting in a loss.
But if you’re investing for the long term, those short-term drops aren’t of much concern to you. It’s the compounding gains over time that will help you hit your retirement or long-term financial goals.
To discuss you and your family's financial requirements, contact me, I will be happy to assist with whatever questions you may have.
Rob
E:robert.gourlay@holbornassets.com T:(+6)01151565649 W:www.rgwealthsolutions.com
Excerpts of a Nerdwallet article were used in the above blog.
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