By How low can it go? That’s the question. I’ve heard from many of you with questions along the lines of when will the market recover, when will the bleeding stop. I’ve also heard others who have called to let me know their 401(k) is a 301(k), that they never should have invested in stocks, this terrible market is due to the current (pick a bad guy): president / fed chairman / supply chain / Russia / inflation – and that this will never improve. It’s only down from here.
Yep. Our whole team here at FFP has certainly received an earful the last few weeks.
That said, I’m grateful for all these expressions and for all of your feedback. Just like a teakettle that eventually boils, we all need some outlet to blow off steam every now and then. As we always say, regardless of good, bad, happy, or frustrated market, we’re here for you. No, we can’t make Mr. Market go up, but the one thing we can do is make sure you’re allocated in a way that helps you realize your goals and dreams.
That said, for those of you that choose not to follow Warren Buffet’s sage advice of not opening your statements during a market correction and you do look at them, well, that can be a gut-wrenching experience. I’ve never met a person who likes to lose money, even if it is paper losses currently.
There have been many studies done showing that the fear of loss is greater than greed. Often people ask me what my typical client family is like. That question typically is looking for marital status, how many kids they have, what they do for a living, what they have in their bank & retirement accounts, and what kind of house or car they own. The answers to those questions are endless.
When I think about my client families, they’re typically hardworking people who are entrusting us with their hard-earned assets and simply need guidance on what to do with those assets and how to react as the markets move higher, but also lower. Typically, these are folks who want to participate on the upside while mitigating the downside risk. Historically, we’ve been able to do that and realize that goal over the long term.
That said, the current market we find ourselves in offers a different set of challenges than a normal market correction, or even what we experienced going through the pandemic. We’re all experiencing significant inflation in the cost of our goods and services, gas and groceries, and while it’s nice to see our homes rise in value, the reality is that none of us are selling our homes to live in our cars, so the increase in home values doesn’t improve our current financial situation or our ability to pay for the inflation we’re experiencing.
When will inflation slow? That really is the question. Personally, I believe we have just started to see the early signs. From the recent easing in hourly wages, to many commodity markets such as lumber, copper, oil, natural gas, and wheat, the commodity markets are adjusting.
Whether it’s housing, groceries, utilities, or the price at the pump, inflation is not going away – it is always present in one form or another. However, historically in financial plans, we prepare for 2.5 percent inflation so that as the prices you pay for fruits, veggies, eggs and milk go up and your grocery bill increases over time, you can buy the same amount of those things during your retirement years.
How does the recent 8.6 percent inflation number play into our retirement projections? It doesn’t take a rocket scientist to see that these levels would lead to significant change if they stay at these levels.
I do believe that the inflation we’re seeing that is significantly due to the energy markets is transitory, and just as other commodities that once rose to unprecedented levels like lumber and copper based on demand and supply chain and have continued their descent from their highs. While people were renovating their homes or building decks in the stay-at-home economy, there was a huge demand for lumber. But, there was not a significant demand for gasoline, as we were literally staying at home. Now that people are getting back out, those supply chain commodities are starting to drop, and there is a significant demand for fuel.
So what do we do until the energy (read all commodity) markets right themselves, and the energy numbers we’re seeing head lower? I believe we stay the course. I believe in the companies we have in our portfolios and I believe in the investments we’ve made, whether for your eventual or current retirement needs. And while we’ve begun to give many of you raises in your retirement income so you can still enjoy trips to the grocery store, there are no big panic-based decisions that need to be made. We’re in a period of time where there is worry and anxiety that this situation won’t get better, but this is no different than any other historical market decline. The markets are a discounting mechanism. Looking in the rear view mirror gains us nothing. All that matters is where they are going. As inflation slows, the market will generally bounce back as the big bad fears and worries have been addressed.
Just as in November ’21 and early January of ’22, many of you did not want to sell when we had discussions about cutting back on equity exposure, and as I write this sentence, many of you will read it and scoff and say he’s crazy! But, now can be a time to buy. That doesn’t mean taking every last penny you have and putting it in the market. I want you to maintain a healthy balance in your checking and emergency funds, but if you’ve got some additional dollars that you’re waiting to put into the market until the news cycle gets better and the price of gas drops, well, by that time, in my opinion the opportunity will have passed.
The stock market is one of the only things in our shopping carts that some consumers want to pay full price for. Read that again. The stock market is the only place where we don’t want to buy when things are on sale. XYZ stock is down 25, 30 or 40 percent? Nah. I can’t imagine this will ever recover, even though that company is making billions of dollars. There’s no way this situation will improve. To put it in lay person terms: The whole country, instead of being excited about the baseball phenom (stock market company A) who hits a homerun on every at-bat and makes billions and billions of dollars, is worried about the price of the popcorn & hotdogs (inflation) or whether we’ll run out (supply chain!).
If that’s your view and you want to sell, be my guest. If you can’t see the opportunity in continuing to buy these great American companies (read home run hitters) while they are significantly off their all-time highs, then you’re truly betting against the innovation we all bring to America on a daily basis in the workforce. Personally, I wouldn’t bet against America. Would you?
While I certainly can’t make any guarantees – heck I’m not even allowed to say the word guarantee – I can say that I’ve seen this great American action movie dozens of times and the hero never dies at the end.
Will this time be any different?
I don’t think so.
For informational purposes only. For advice appropriate to your specific situation, please consult a financial professional. Past performance is not indicative of future results.
Registered Representatives offer Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way Cincinnati, Ohio 45242 (513) 794-6794. Investment Advisory services offered through O.N. Investment Management Company.