The overall stock market has been all over the place in the last 30 days—up, down, and flat. This is not the first time the market has lacked clear direction, and it definitely won’t be the last.
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As you are probably aware, a war is raging in Ukraine right now—Russia is exerting its dominance over its western neighbor. In response to this unprovoked action, the western world has united in imposing economic sanctions against Russia, decimating its economy. So, what does this mean for the US economy? And what does it mean for markets?
The stock market consists of all the publicly-traded companies in the country—this means that each publicly-traded company’s aggregate earnings, losses, challenges, and struggles are represented in the stock market. This last month, the stock market declined by almost 10% at one point. So, as investors, how are we to interpret that swing? And, how do we proceed in an environment like this?
I have spoken with several individuals hoarding cash on the sidelines since December 2019 because they are waiting for the ‘inevitable’ market crash. Even after the current 5% dip, the stock market has increased by 15% this year and 70.2% since March 2020. Not only has their decision to sit in cash cost them in potential gains, but it has also cost them in purchasing power on account of higher-than-usual inflation.
I’ve been reading a lot of doom-and-gloom articles lately. Some claim that COVID will destroy humanity, financial advisors are stating that inflation is here to stay, and many talk about how retirees are in jeopardy of dying in poverty. Some of these predictions may come true, but many of them probably won’t.
When people think about investments, they mostly think about stocks and bonds—this is usually because these are the most common assets types held by individuals. Just because these are the most common investments doesn’t necessarily mean they are the best in all market environments. There are many other asset types that you should consider when you’re allocating your investment capital.
The reason we invest in anything is that we believe we can increase our savings. For many years, investors have been told that the key to riches is to buy low and sell high. I believe that is foolish advice, and I’m here to put in my two cents.
The main problem is that it lowers the overall return on investment, and as a result, reduces certainty more.
Recently, I have seen many articles stating that the stock market will drop by 5%-20% by the end of the year. Despite these many predictions by pundits, analysts, and economists, no one knows the market’s future direction—even if they guessed right previously. I can say this with certainty because the world doesn’t have a trillionaire.
In my previous report, I said that I believed the Fed “will not touch interest rates for the foreseeable future, which means that 2021 will likely be a year of higher-than-usual inflation.”
Since that report, the Fed has made some announcements which make me think that my previous statement will be the understatement of the year!
There are many novice investors jumping into the markets right now. And why not? Almost all investment classes have been jumping in value over the past several years. In the next few years, you’re going to see market corrections and shifts away from meme stocks—that’s when you’ll see the difference between novice and savvy investors.
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