The markets are in the Upside-Down and have been for some time.
Let me fill you in quickly if you haven't joined the Stranger Things party. The 80's throwback sci-fi thriller features teens in a small town who meet a special girl - the result of nutty LSD experiments (for the surprising and declassified true story that inspired this, google "MK ULTRA").
Long story short, this young girl accidentally opens a portal to the "Upside-Down." Essentially, a world that is just like their home but very strange. Some would say, "backward."
NOW THE MARKETS
When explaining the markets to clients, I find myself thinking about how everything is "Upside-Down."
Example: Investors typically hold bonds in their portfolio to protect against losses in the stock market. Why? Because when stocks lose value, it's often because something is wrong in the economy. The central bank then decreases interest rates, making existing bonds more valuable.
See the chart below from the 2008 Financial Crisis. (Blue = Bonds, Red = Stocks). Bonds outperformed stocks, helping to protect your losses in stocks:
Source: Koyfin, AOWM
However, we are now in the Upside-Down. Our economy is experiencing excess inflation for the first time in a generation. Meaning interest rates must increase to stop inflation, hurting stocks AND bonds.
See the chart below, beginning in November 2021 to the present. (Blue = Bonds, Red = Stocks). Both have been falling:
Source: Koyfin, AOWM
MORE UPSIDE DOWN
Okay, so we know that no one is safe in this environment. That would be okay if the markets acted consistently…..but they don't - which is why everything feels so Upside-Down.
Typically, good economic news is a boon to stocks. But, because things are Upside-Down, that means that good economic news will lead to more inflation, requiring the central bank to increase interest rates; thus, bad for stocks and bonds.
Unfortunately, the markets haven't been consistent with this logic. When I see good or bad economic news, there's no telling which way stocks will turn. I've seen both these headlines in various forms over the last few months:
"Stocks drop on worries of strong economic growth"
"Stocks increase due to strong economic data"
HOW TO WIN?
The million-dollar question – how do you win in this market?
Similar to weight loss, we want a silver bullet. Take one pill or drink only this ultra-keto fruit cleanser for 14 days straight, and you will have the body of your dreams.
Yet, the key to winning in your health AND the stock market is the same: patience and discipline.
Going back about 120 years, there's never been a 20-year period where US stocks didn't recover. Moreover, the average 20-year return over that time period was 6.90%, annualized¹.
It may be painful, and that click-bait article may be persuasive, but stay the course.
This is the primary benefit of hiring a professional.
Even Vanguard, the king of passive indexing, who has every reason to persuade investors to ditch their advisor, says that hiring an investment advisor can help you return an additional 3% annually over the course of your life, after fees².
Like the characters in Stranger Things, they didn't tackle their challenges in the Upside-Down alone. They teamed up, formulated a plan, faced their fear, and won.
Don't be scared of the Upside-Down market we're in; contact an AO Rep today.
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(1) AlphaOmega Wealth Management calculations using Robert J. Shiller market data ending in July 2022, found here. Calculations include inflation, noted as CPI (Consumer Price Index).
(2) https://advisors.vanguard.com/insights/article/IWE_ResPuttingAValueOnValue
Risk Disclosure: Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding the accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
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