In Tough Markets, It Helps to Remember The Basics
To paraphrase Thomas Paine, these are the times that try investors' souls. When the market is strong, you probably don't spend much time looking at your portfolio. But in turbulent times, you might be getting a little queasy.
I understand your concerns, and I share them. But it can be helpful in times like these to keep a few basic things in mind.
First, what goes down will come up. Market drops do not last forever, though it might seem like it. The average length of a bear market is less than 10 months. The longest ever was the Great Depression, which lasted 61 months. This is not helpful if you need your money in the fairly short term. But if you are investing for the long term, you have time for your portfolio to recover. For context, check where the market was 20 years ago, 10 years ago or even five years ago.
This market volatility is caused mostly by very unusual occurrences, especially the Russian attack on Ukraine and the fallout from the pandemic. The Ukraine situation, with the disruption in oil from Russia, has been a major contributor to inflation, which in turn has burdened the market. And friction between world superpowers puts markets on edge.
At the same time, the pandemic caused a huge disruption in the U.S. and global economies to which the market is still adapting. For example, during the peak of the pandemic, fewer people bought homes or moved to new rentals. The pent-up desire for real estate has fueled a big bump in home and rental prices, which contributes to inflation. The pandemic recovery also has included disruptions in the supply chain, as manufacturers that were mostly shut down have powered back up.
In other words, there is virtually no evidence that this volatility is caused by systemic issues in the market itself. The U.S. economy is strong, companies are continuing to make money, and governments are taking action to ease shortages and to control inflation.
In the United States, employment is strong. The Fed has been focused on reducing unemployment, and it has worked. If people are employed and making money, they feel confident and they spend money -- which further fuels the economy.
Finally, remember that market volatility is less nerve-wracking if your horizon is long-term and if you have a cohesive investment strategy that is based on sound and tested principles and that takes into consideration your feelings about risk.
At Peachtree Investment Partners, we believe in investing in companies that have proven strategies and a track record of success. We invest mainly in large American companies that have strong leaders with the experience and foresight to recognize and adapt to whatever happens. We also look for companies with a good return on investment and a long history of consistency in revenue and earnings growth.
Finally, we believe in stocks that pay dividends. Over time, reinvested dividends can have a major impact on your portfolio growth. And dividend income means your return does not depend fully on an increase – or a decrease -- in stock price.
We are always available to talk with you about any concerns you have about your portfolio, so don’t hesitate to reach out. As the ancient Persians said, This too shall pass.
Garry K. Schaefer
April 19, 2022
Peachtree Investment Quarterly may offer general financial, insurance, tax and business ideas. However, due to the ever-changing tax laws as well as the complexity of the financial industry, you should seek professional advice before implementing any of the ideas contained in this newsletter. Peachtree Investment Partners, LLC(TM), and Osmosis Digital Marketing, Inc. assume no liability whatsoever in connection with the use of this newsletter.
