What do they really know about your investments?
The “experts” have been predicting gloom and doom and a recession for quite some time. After all, inflation spiked, the federal deficit ballooned and the war in Ukraine is still raging beyond belief. If you watch the evening news, it’s quite frightening.
Last year, account values for many investors fell significantly and the road ahead was paved with pessimism. Some investors took it on the chin and abandoned their investments for the safety of cash.
Well, guess what? Many investments bounced back double digits from last year’s lows. As an advisor I’ve heard it all. From “I won’t live long enough for values to rebound,” to “market values will never rebound.” I’ve heard every possible excuse for abandoning long-term investment strategies.
What has surprised many experts is that we haven’t fallen into the anticipated deep recession. In reality, it is the most reluctant recession that I can ever recall.
Generally speaking, the people that ignored the urge to sell and stuck with their investment plans are far ahead of those that threw in the towel. Those that stayed with their financial blueprint, and perhaps made some minor portfolio tweaks along the way, are probably much happier than those that bailed out and suffered the consequences.
Is it possible we eventually hit that brick wall that’s been in the economic forecast? Yes. In fact, over time financial markets exhale as well as inhale. Investors who understand this and avoid the panic button are generally rewarded for their perseverance.
The one thing I can say with certainty is that economies heat up and cool off, in the same way that financial markets move up and down. To accurately predict peaks and valleys in the economy and financial markets is close to impossible.
With interest rates rising, I know that many people are comfortable and content with their cash sitting in the bank. After all, they’re earning a much higher rate than they were just a few years ago. Don’t get me wrong; it is nice that bank deposits are finally earning a respectable rate. But I wouldn’t get very comfortable with too much of your long-term portfolio in cash.
Eventually you need to get out of the comfort zone and back into the investment world for much of your portfolio. I say this because most successful investors diversify among different asset classes in order to meet long-term goals. Remember, even if inflation slows down, it’s likely that prices will continue to rise over the long term and purchasing power likely won’t keep pace.
As an advisor, I’m a bit amused when people reference the expert “they.” They predicted a market crash. They predicted a recession. They said I should put my money in a certain investment. My conclusion is simply that “they” don’t know. In reality, values move up and down over an investor’s lifetime. And there isn’t an expert that can consistently pinpoint when directions change.
That’s precisely why I recommend diversification. I suggest you establish a financial blueprint to help measure where you are relative to your goals. That will help guide you regarding how and when to diversify. At the end of the day, plan for the unexpected. The investment world has a way of surprising investors. Don’t be surprised by a surprise.
The one thing I can say with certainty is that economies heat up and cool off, in the same way that financial markets move up and down.