Markets are behaving horribly at the moment. Their (mainly downward) moves are being unkind to us. Wiping wealth from before our eyes! But I don’t blame them. Markets are grappling with some of the most complicated, confulged and crazy times. Ever. It all started off with some (perhaps not-so-innocent) money-printing that’s it’s essentially been going on since ’08) and now we’ve got it on the most grandiose scale. QE means that money has been spilling into every nook and cranny, bringing everything up with it.
As a result, assets from stocks to houses, reached dizzying heights. The mere thought of looking at some of these prices (ahem, a flat in the city!) are giving me a headache. You’ve just gotta look at a handful of tech stocks, or talk to anyone who’s tried to buy a house this year. They’ll have their fair share of stories, like having to pay in cash and well over the asking price, or else they’ll never hop on the ladder. I suppose that chat is for another time. Anyway, watch this space, folks.
A Nasty Mess
But actions have consequences and markets are slowly but surely starting to feel these ones. For starters, we’ve got inflation (read here whether it was really inevitable & 4 ways to protect your money) and the raising of interest rates that comes along with that (doing damage to the high-growth stuff); the soon-to-be QE tapering (if that will ever happen) which will stifle liquidit; markets will find themselves with more sellers than buyers. And, to top it all off, Russia is invading Ukraine. I have no words.
After a two-year war with a virus (what feels like 5 months but also 10 years) that’s hopefully coming to an end, a war in Europe is the last thing anyone needs. Especially the people of Kyiv who have been queuing outside ATMs. Desperate to take out their cash. I saw a picture of the queues on Twitter and it makes you realise that there are people at the other end of this. We tend to forget that. We seem so far away from it all. But while wars are easy to get into, they’re tricky to get out of. And honestly, since I closed my textbook on European history (1917-1989), I never thought I’d hear the words ‘world war’ again. I pray we aren’t there.
Nothing Lasts Forever
Before all this, markets have been going in a straight, upward-sloping, lovely-looking line since their lows in March 2020 but all good things must come to an end and it just so happens that they get lumbered with a war to puncture a hole in this balloon. The air that so desperately needed to escape. Markets are selling off. Pretty badly. Some (Nasdaq, -13.52% YTD) are down more than others (FTSE 100, -1.68% YTD). It seems like the worst is not yet behind us. That tapering, rate hikes, inflation (oil hit $110 a barrel!) and all this nasty war stuff will cause this house of cards to collapse yet further. Markets are looking fickle. Read here where you turn to for shelter during this wacko investing climate. But it’s usually when stocks turn sour (and enter red territory) that folk sell. They’d rather cut their losses, that way they don’t have to see all that ugly red (very negative) stuff on their screen!
All this can make you think, why bother? Why invest at all? Why risk your hard-earned cash all for it to get swallowed up in the madness and it might never come back? After all, we’re living through one of the craziest investments periods that’s going down in history! And if you’re thinking these thoughts (and many, many more) know that I’m thinking them too.
Your Money Will Be Worth Less, But Hopefully Not Worthless!
But look at the alternative. Look at not investing. For starters, inflation is 5.5% in the UK and 7.5% over in the US. And with all the supply shocks we’re seeing with oil & gas (Russia accounts for ~10% of global oil supply and 15% of natural gas), inflation is gonna climb a whole lot higher. But let’s assume a 6.5% rate of inflation. Now, interest rates are nowhere near that level which means so if you stick your money in your bank, expect (practically) nothing in return! Instead, you can expect inflation to come and slowly but surely chew away at your money. If you have £100 in the bank now and inflation is 6.5%, next year your money will be worth £93.50 and the year after £87.42 and so on. Until you have nothing left!
The cost of living is rising. And rising. From rail fares (up 4.8%) to taxes (read here about the Invisible Tax here and what it mans for you) to energy bills (set to rise by ~50% in April), our money is not stretching as far as it used to. Read here what you can do to get some stretchiness back. Hint: Turn to markets! Whatever happens, don’t let markets get the better of you, by forcing you to abandon investing altogether. Markets are a compounding beauty. You’ve just gotta give them time. Lots of time. Time is the air they breathe.
You’ve Gotta Face The Music
Right now, I bet all you wanna do is pull your money outa this market mess, not invest at the minute or better yet, to avoid it altogether! No one knows what the future will hold, heck no one even knows what tomorrow holds! But remember that markets move quicker than you think. They’re also forward-looking things which means they move quicker than the economy does. And just when tomorrow looks slightly-better than today, markets will be inching up. And you don’t wanna miss that. You do not wanna miss the best days. Cause you can never get ’em back.
But since we can’t time markets we’d better have lots (and lots) of time in the market. Time is your new best friend. See, investing is a magical compounding machine. Give it money + loads of time (psst: time > money) and it has the power to bring you from where you are now (in my case from scrimping and scraping for a deposit) to where you want to be. Investing will put your hard-earned cash hard at work. But having said that, things could get a whole lot worse before they get better. And right now, it seems like something pretty big is brewing. I just feel it.
But don’t let markets bully you into selling (on a very big low) so much so that you end up missing out on the markets’ best days cause if you do, your returns will be way, way lower than had you stuck around the entire time. Until markets recover, hang tight and keep doing your thing. In the meantime, try not to look at your portfolio too much! Red is a most unattractive colour for it. Wait till there’s some sign of green on the horizon. Red makes us sad; green makes us happy.
And if all this talk of wars is making you think twice about investing, if you’re feeling paralysed, take a look this recent blog post of mine here. It highlights 7 (investment) hiding places during these scary and pretty unprecedented times. And head here for the one simple thing you can do to lower your portfolio’s risk.
In the meantime, sit tight, hang in there and stay safe y’all.
This is gonna be a bumpy ride.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.