INVESTOR SERIES
Volatile times these days with a 9.1% consumer price index (CPI) inflation number released in June and the Federal Reserve’s hawkish commitment to bring down inflation. Many investors have liquidated their portfolios and are waiting for market recovery with their cash.
Investors should resist attempting to time the market
Volatility creates investment opportunities! There are differences between investing and speculating and suggest you use 95% of your available funds to invest wisely.
Speculating short list includes a) emotion, quick impulse investment b) ego, you’re better than the market.
IMPORTANT TO KEEP IN MIND
Stock market corrections are normal
Since 1946 there have been 29 occurrences where the S&P 500 declined between 10% and 20%. In these cases, the average time to recover these losses was only four months. Second, while market drops of at least 10% are common, market drops of 20% or more are not. There have been nine occurrences of declines of between 20% and 40%, and only three occurrences of a decline greater than 40%.
Declining stock prices are beneficial
Although this volatility can present significant investment risk, when correctly assessed, it can generate solid returns for investors.
Investors choosing to be in cash rather than invest in stocks have mostly lost money
Stocks yield a significantly higher return than savings accounts do. Since 1928, stocks have given investors a 9.5% return annually.
In addition, according to Goldman Sachs, from 1986 to 2021, cash earned a 3.5% total return, which became 0.8% net of inflation and -0.6% after inflation and taxes. Stocks provided superior returns than cash net of inflation and taxes.
