In today’s episode, we’ll discuss a question I’ve been getting a lot lately; should we take our money out of the market?
A Long 15 Months
We talk a lot about staying the course and ignoring the blaring Doom and Gloom headlines. But when they just keep coming for 15 straight months, it gets harder and harder to heed that advice.
The market and economy have been tumultuous, and every time interest rates were increased in an effort to cool inflation, equity portfolios took a bump on the chin. The constant beatdown starts to weigh on the psyche of even the most even-keeled investors, and they begin to wonder if they’re going to be okay and if they should get out.
Action Feels Better Than Inaction
Action always feels better than inaction, but sometimes those actions are the wrong decision. And investors have the carrot of rising interest rates dangled in front of them.
They see they can get 5% on a CD and 4-4.5% on a money market account. And while those aren’t exactly sexy numbers, they sure look better than continuing to see our accounts fluctuate and to go down. Those investments at least offer stability. Okay, that would offer some relief from the volatile market but what about inflation?
Visual Capitalist created a very illuminating chart showing the impact of inflation on the prices of consumer goods and services between 2000-2022. Some items like software, toys, and televisions actually dropped in price and are cheaper today than they were 23 years ago.
Household furnishings, clothes, and new cars remained stable, although car prices have jumped in the last 18 months, but relative to the past two decades, they remained stable.
But some things were much more expensive, including hospital services, college expenses, medical care, childcare, food and drinks, and housing. Hospital services are 200% more expensive!
Scale of production and mass adoption has made some items cheaper over those decades while things, including the cost of supplies, insurance, liability and malpractice insurance, and interest rates, have pushed some prices higher. But the history of inflation shows that inflation drives prices higher, so ten or 20 years from now, just imagine the cost of health care and higher education.
Should We Take Our Money Out of the Market?
Take a look at that inflation chart. If the current trend continues, a lot of the prices we pay today for things we must have, will double. If we don’t position our investments to take advantage of compound growth over time, we run the risk of inflation eating away at our money. That’s the biggest reason not to jump out of the market entirely and park your money in things like CDs and money market accounts.
Inflation isn’t the only risk to our money. In this current climate of fear and uncertainty, there are predators looking to take advantage of our anxiety. We’ve worked for decades to build up our investment accounts, and watching them drop hundreds of thousands of dollars over the last 15 months has been painful.
Predators see this and jump on the opportunity to sell us a guarantee, stability, and to pick apart what’s wrong with our portfolios. This is short-sighted. It scratches that itch for action over inaction, but it’s damaging to our long-term plan.
It’s What We Do Best
I don’t know what will happen over the next few years. What I do believe and have always believed is that long-term equity investing and having a portfolio that is positioned for the long term to meet your investing and retirement objectives with inflation factored in are the keys to success.
Recently a client told me his bank had offered him 8% on a money market account. Now, I’ve never heard of any MMA paying 8%. He thought maybe it was a CD. No. No CDs are paying that either. He was told 8%. What he was sold was an annuity. A vulture sensed his fear and offered him something with no understanding of his plan, his portfolio, his long-term financial goals, or how this annuity would fit into his plan.
You don’t have to make these decisions alone. That’s what we’re here for and best at. Let us be a resource and an advocate. We don’t have to manage all of your money. If a bank tells you they can give you 2% in an MMA, call and ask, “Is 2% good, can you get us 2%?” We’re here to be your sounding board and long-term guide to help you make the right decisions and weather storms.
There are some things you can do to help scratch the itch of inaction without setting yourself back and losing future compounding.
Not all of your money has to be invested in the market. Have an emergency fund with six months’ worth of essential expenses. If you’re in or near retirement, have three to five years’ worth of money that is designated as income so you don’t have to abandon your investment strategy in a tumultuous market.
Real estate can be a great source of cash flow. It gives you two wins against inflation, the value of the asset increases and you can increase rent. Again, look at the impact of inflation on housing costs over the last 20 years.
Consider dividend growth investing. Many of the big companies whose products and services we use everyday use part of their earnings to pay investors in the form of dividends and many of those companies increase dividend payments year after year. This is another great way to offset long-term inflation.
So should you take your money out of the market? No but if you don’t have a plan, you need one. And we can help you create that plan.
If you have questions on tax planning, reach out; we’re here to help.
Listen to the Full Episode:
What You’ll Learn In Today’s Episode:
- The weight of the last few months and why people are getting uncomfortable.
- The main problem facing investors right now.
- All of the “safe” options that people are looking at and what I think about them.
- Unpacking the inflation situation and putting things into perspective.
- The value of positioning yourself to take advantage of compound growth.
- How to recognize and avoid financial predators.
- What you should be trying to do to help meet your income and investment objectives.
- The importance of finding ways to increase your cash flow.
Ideas Worth Sharing:
- “The problem that is facing investors right now is that the interest carrot is being dangled.” – Jonathan Bednar
- “If you are not positioning your investments in a way to take advantage of compound growth over time, then you are running the risk of letting the financial termite that is inflation chew away at the foundation of your house.” – Jonathan Bednar
- “There are financial predators out there that are preying on people and their insecurities around their investments.” – Jonathan Bednar
Resources In Today’s Episode:
- What The Wealth?! by Jonathan Bednar
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