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By Debra Ohstrom, CFA
We are entering one of those periods of time again where stock markets go into a correction and assets get repriced in anticipation of a different future.
We are human so we can over react to both good news and bad news so it’s important to keep that in mind.
It may take some time for investors to have clarity on where interest rates and markets stabilize which is why it’s always important to have a long term perspective. The current environment reminds me of the dot.com bubble bursting and stock markets dropped for over 2 years but they eventually recovered and did well.
From 2002 to 2022 the S&P500 index returned roughly 8.6% per year on average over that time period.
If you want to have your money keep up with inflation you are going to need to get comfortable with the up and down markets of investing.
If you keep your money in a savings account or some other investments that earn 2 or 3% your money will be worth at lot less 20 years down the road.
I hear so many people buying whole life/permanent life insurance here in the U.S. because they see it as an investment and they aren’t comfortable with the risk in the stock market. For me, thinking whole or permanent life insurance is an investment is a much bigger risk versus the stock market since you know for sure your money will be worth less versus inflation overtime.
If you look at the history of stock market returns over the past 100 years a lot has happened. There have been wars, energy shortages, protests and the civil rights movement, massive inflation in the 70’s, housing bubbles, tech bubbles, high interest rates and more will happen. But, despite all of that, many companies around the world continue to exist, earn a profit, pay dividends, sell goods to consumers, invent new technologies, merge with other companies and takeover competitors, all providing investors with value and giving them a profitable return on their investment.
The big question isn’t if you should be invested in the stock market it should be HOW MUCH of my money should be in the stock market, so that I am comfortable with a downturn but still have my money grow for me and outpace inflation.
Investing doesn’t need to be overly complicated and it isn’t about get rich quick schemes, it is about learning some of this history to understand how much and what investment categories to invest in so that the mix is right for you and your situation.
There are some general guidelines for dividing up your income into certain needs versus wants and it Is called the 50/30/20 rule. Obviously, this guideline should tweaked depending on a person’s situation but it goes like this: 50% of your income should be spent on necessities, 30% on wants and 20% towards saving and investing.
I always like to recommend that everyone gets a Financial Health check once a year. Our Financial Health is just as important as our physical health so taking a look as to how your financial mix is currently being spent and invested is a good habit to have.
There are always good ways to check your budget and see it you have expenses that shouldn’t be there. It can also be a great time to review your insurance policies. You want to make sure you have the right coverage but also compare different companies to get the best rate or bundle as much together as you can and get some discounts.
If the US does officially go into a recession, keep in mind that over the past 50 years recessions usually last around 11 months. The US stock market reacts ahead of time, meaning that they fall before the official word of recession is declared by economists but then the stock market also starts bouncing back before the recession is officially announced as over. That is why it is so hard to time the market with short term trading and investors who think long-term grow their money over time.
Here are a few tips to help you get prepared and have less stress if a recession hits.
Pay off all your credit cards ASAP. Since many of us are currently employed and have income then now is the time to get rid of any credit card debt. If the economy does take a turn for the worse not having this debt hanging over your head is a great stress reliever.
Check out discount retailers or memberships for places to buy paper goods. Places like Dollar General here in the U.S. are expanding their product offering and can be good places to pick up items that are overpriced in other grocery stores.
Continue to invest and think long term. The stock market is usually down 3 out of every 10 years so you need to put up with some down markets in order to reap the long term growth rewards.
Remember delayed gratification and avoid get rich quick schemes. There is so much misinformation on the internet to lead people to believe that by picking a few hot stocks they will become millionaires overnight. Getting started investing for the long term and saving money is a much better way to ensure your secure financial future.
For educational on-line courses that will help you make good decisions for your future, check out my website: www.DebraOhstrom.com
Bye For now,
Debra
Debra Ohstrom, CFA
Founder | DebraOhstrom.com
I offer the Womenhood community a $50 discount on my courses and if you have any questions, feel free to email me at debra@debraohstrom.com
About the Author
Debra has worked in the financial industry for over 27 years at firms such as Merrill Lynch, Morgan Stanley, Citi Private Bank and Allianz Global Investors. She has worked in different roles such as research, asset allocation and account management. She has an MBA in Finance and the Chartered Financial Analyst designation. Debra created her education business, DebraOhstrom.com to help women get the education they need to become confident investors and be in charge of their financial future.
Debra Ohstrom, CFA
Founder | DebraOhstrom.com
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