It’s been a shaky start to the new year with investments seeing some hard declines. You might be asking yourself – are my financial goals still on track?
Let’s take a look at the big picture to know if there is truly reason to be fearful, or how we can focus on the horizon and long-term goals. In my latest video blog update I highlight:
- Market trends over the last 20-47 years
- The transition from Secular Bear Market to Secular Bull Market
- Separation of assets into pots of wealth
- 4 reasons why the stock market should rebound
Transcript
Here we are early 2022, actually March of 2022 and you’ve got your financial statements for January and you saw the portfolio values on some of your investments have been going down. And then you get your statement in February and it’s even lower. And there’s a lot of news about Ukraine and Russia. There’s a lot to be fearful of and the question comes up, “Am I okay? My financial goals, are they on track?” Let’s talk about that right now.
Hey you guys. Doug Pardieck with Talon Wealth Strategies. Yes, there’s been a lot going on in this world and there’s a quote in the book The Hobbit by J.R.R. Tolkien where he says, “From the fire to the frying pan.” Man, we’ve gone from the pandemic to this Ukraine-Russia conflict and it’s just a lot of negativity, a lot of bad news. We’ve been on a tough journey for the last two years. Are you going to be okay? Let’s talk about that.
Looking back at the stock market the last 20 years, we’ve been through a secular bear market in the 2000s.
If you were an investor in 2000 and you put money into the S&P 500, by the time you got to 2011-2012 you’re kind of where you started. That’s what we call a long secular bear market. But from 2012 all the way to today, 10 years into it, we’re in a secular bull market.
Historically, these secular bull markets go for 16 to 18 years. So, is there reason to believe we could go for another four, six or even eight years? Yes, we believe the fundamentals are there for this bull market to continue.
But lately we’re in a market correction. The S&P is down 12.5% from the beginning of January to just recently last week the stock market hit a low of a 12.5% drop. But we do think this is just a normal correction and it’s just temporary.
Let’s look at the NASDAQ composite. This has actually suffered worse than the S&P 500. This is where you find more innovative companies, high tech, growth-type of companies. They peaked back in February of last year and they have been sinking ever since. For those of you that are younger and have a more growth portfolio, you’ve got more exposure to these types of stocks and the last year has been tougher on your portfolio. Just know this is normal. These are good companies. They’re just temporarily out of favor, but eventually when we look at their fundamentals, the stock market is going to rally.
Benjamin Graham gave us a really good quote to help is in investing. “In the short run the stock market is a voting machine, but in the long run it’s a wang machine.” Meaning short term there’s a lot of emotions, panic, fear that dictate the stock price, but eventually what really matters is the corporate’s fundamentals. Are they having positive earnings? Are there profits? And if they’re consistently showing good earnings and good profits that stock price is going to rebound and follow them. That’s a good wisdom from Benjamin that we all need to be aware of.
So, are you going to be okay? Is your financial plan on track? Well, here at Talon Wealth Strategies and the group around me, we do like to use a separation of your assets into pots of wealth. Pot number one is your now money. That’s going to be cash. This is for your short-term goals. This should give you two to three years of cashflow needs coming from conservative cash type of investments. So, if the stock market is down, you’ve got two to three years of cashflow coming from your pot number one and you can give your portfolio time to heal. Now we put a lot of assets into pot number two. This is money you’re going to be using soon in years four, five, six, seven. These are goals that are a little bit further out so we can put them into a little bit of risk in the pursuit of some appreciation and higher income. The rest of your money, the bulk of your money goes into pot number three. This is where we’re taking on more volatility risk to have more potential growth.
Here’s a good quote by Robert Brokamp. “Market pullbacks, including corrections and bear markets, they are temporary. Bull markets are permanent.”
So, looking over the last 42 years, and I put little red circles around places where it was a market correction. The price of the stocks were temporarily down. They’re on sale. And the arrows show you a 20% pullback, a bear market. These are always temporary and they are very good opportunities to buy before the stock market goes back up again.
So, your share count – the number of shares you own – when the market goes down the share count doesn’t reduce. It doesn’t get smaller unless you’re selling. If you’re selling you’re making those losses permanent. But if you’re holding onto your good, high-quality investments and you’re adding more share, when the stock market goes down those share prices are sale and every dollar you put in you’re buying more shares. You’re getting your income engine, your wealth building engine, bigger. We want more shares. That’s how you’re going to create wealth over time.
So, don’t look at this correction as something to be fearful of. Look at it as an opportunity to build that engine that’s going to provide for your long-term goals down the road. We want a bigger engine. We want more shares and now is the time to buy.
How can we make a case for the stock market to rise up over the next year and set a new all-time high? Well, consumer spending is very strong. We just got some data in suggesting that consumer spending actually rose by 5% just recently. Corporate earnings are increasing. They had a great year last year and they’re going even higher this year. Healthy balance sheets, so corporations, the U.S. Consumer, the financial system. They’re all very healthy. These are good fundamentals for the economy and this is good for the stock market. The U.S. labor market is still very strong. There’s an estimated 1.7 jobs per person looking. So, good fundamentals, the economy should be resilient and weather this storm, and your stock market should be rebounding sometime this year and getting to all-time highs once again. But before that happens I want you to be adding more shares. Whether you’re putting new money into your 401K or your Roth IRA, or you just have dividends in your portfolio and they are reinvesting and buying more shares, this is an opportunity to grow your share count, to grow your engine and this is a good thing.
If we could be of help, Doug Pardieck with Talon Wealth Strategies. Give us a call, check out our website and have a wonderful spring. Things are going to get warmer eventually and we’ll see you soon.