For those of us who have been around for a while, we know, or at least should know, to take the economic turbulence in stride, but remember that there is a generation of investors that has never known real economic turmoil.
In the first ten years of this century, we saw two recessions. First was the dot-com bubble, and then the housing bubble of 2008. Since then, we have enjoyed 14 years of fairly uninterrupted economic growth. Add to that impossibly low interest rates and almost no inflation, and it’s easy to see how upside down the world seems to have gotten in just the last several months to so many younger or inexperienced investors.
I’ve been in the business of giving advice for nearly twenty years, but how many of the talking heads have never experienced a recession, let alone a rising interest rate environment? The internet and social media, where so many younger people look for information, has no shortage of unqualified bloggers and influencers doling out advertising or clickbait they pass off as advice. In that environment, it’s easy to believe the deck is stacked against you as an investor or, at the very least, to lose all sense of direction.
For more than a decade, interest rates were so low on an inflation adjusted basis, that borrowing money became incredibly cheap. This has its pros and cons. On the upside, low interest rates meant that people could refinance their debt and vastly reduce their payments and/or loan terms, putting many on much more firm financial footing.
On the downside, however, low rates also enticed some to borrow against their risky assets in order to buy more risky assets. Warren Buffett has said, “when the tide goes out, you find out who’s been swimming naked.” It’s easy to go online and see who, whether due to lack of experience or plain old greed, that refers to in the current pullback.
The tide will come back though. Not for everyone, and not in the same way, but for those who keep their heads and are patient, the tide will come back. It always has, and we see no reason to believe that this time will be different.
Things have a tendency to revert to the mean. Of course, interest rates are rising; they couldn’t stay low forever. Of course, inflation is rising; it couldn’t stay low forever. The economic conditions surrounding the last decade have not been normal, and many investors are going to be reminded what a more normal market cycle looks like.
There will be winners and losers. There always are.
Those who are patient, act rationally within the tried-and-true tenets of investing should fare far better than those who allow fear, greed, or inexperience direct their reaction to changes in the markets.
As always, be sure to work closely with your Certified Financial Planner® professional to help ensure that your plan accurately reflects your personal economic circumstances, goals, and the ever-changing economy.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Forward-looking statements are subject to revision. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret Grant are separate entities.