It’s almost impossible not to feel anxious at the dips and dives the stock market has been taking recently, compounded by relentless inflation-focused headlines. That’s why you might be surprised to learn there’s a lot of positive news to be had, despite the market uncertainty.
Read on for three encouraging themes that illustrate the long-term benefits of the stock market and why now is the time to recommit to your financial plan.
Let History Be Your Guide
We’ll start with the bad news, because it would be naïve to ignore certain realities. Yes, the market has just endured the worst start to the calendar year in decades. And yes, it’s the first time in 60 years both stocks and bonds have declined simultaneously.
With that out of the way, let’s turn to the favorable news. Although market pullbacks may continue for the foreseeable future, it’s vital to keep in mind that these short spurts don’t define the market over the long haul.
When viewed daily, markets advance approximately six out of every 10 days, and if you take a calendar-year perspective, the stock market has gone up far more often than it has gone down. It’s reassuring to realize that fluctuations occur regularly, yet these slumps are usually overcome in short order.
In fact, while drawdowns are common, so are recoveries.
Dig Deeper into What’s Causing Inflation
While inflation itself isn’t positive, its story is far more than just higher gas prices and food costs. Some of today’s rising inflation is caused by an array of factors that may otherwise constitute a strong economy.
Again, we’ll dispense with the bad news first. There are indeed some negatives propelling inflation, including the lingering effects of COVID-19, continued supply chain disruptions, the Russia/Ukraine conflict and the downstream impact of the stimulus payments during the depths of the pandemic that flooded the economy with money.
And while those are all hurdles to overcome, what many miss is that inflationary pressures also stem from beneficial market forces. Here are five less talked about positive contributors to today’s inflation:
- Surging retail activity – As the pandemic wanes and the world reopens, consumers are eager to get back out there and spend, whether it’s planning a well-earned vacation or enjoying an evening out with friends. Pent-up demand for goods and services – by all of us, at the same time – allows companies to raise prices. While that ultimately creates inflation, the root cause is a positive one: strong consumer spending.
- Increased home values – Skyrocketing housing prices are burdensome to those aiming to buy their first home or relocate to a highly desirable area. But they are music to the ears of the current lucky homeowners who have seen their equity swell. Along the way, many have refinanced at historically low interest rates, which means their net worth has also increased as home values rose.
- Higher net worth – Those soaring home values are just one part of our prosperity. 2021 saw the biggest increase in Americans’ net worth in history thanks to elevated asset prices and rising stock prices. Although we’ve given a bit back as the market dipped, it still represents bigger gains than any other year.
- Rising business spending – All that pent-up demand is fueling a commensurate ramp up for businesses as they aim to meet market interest. That leads to investments in new machinery, factories, inventory and, of course, talent. This creates demand for goods and thus pressure on inflation.
- Fastest-ever labor recovery – One sign of the health of the economy is how long it takes for the job market to recover – and the pace today is blistering. For comparison, it took at least six years after the most recent recession for jobs to become plentiful, and today the market has almost fully recovered in the two years since shutdowns were prevalent. Currently, there are approximately two available jobs for every unemployed American, which is the best ratio on record. By contrast, in 2010, there were four unemployed workers for every one available job.
All these factors are intertwined. Consumers are confident about their net worth and good jobs. Which means businesses need to ramp up production. Which leads to more great jobs that offer higher wages as businesses compete for staff. The result: We’re spending our money quickly, which is leading to inflation.
And while accelerating rents and surging gas prices are a real burden for Americans, there are also some potentially positive aspects that are materializing alongside these higher prices.
Remember, You’re in It for the Long Haul
Looking at the market day by day can incite elation, then despair. That’s why it’s important to note that it doesn’t matter what happens on one day – it matters what happens on all the days.
The longer your time horizon – that is, the time until you need to tap your accounts in retirement – the less likely you are to experience a negative return.
Consider this perspective: Since 1970, the average rolling annual period saw advancement from stocks around 80% of the time. However, over rolling 10-year holding periods, stocks are up over 92% of the time, and they’re higher 100% of the time for all rolling 15-year periods. That means those with a greater than 10-year investing time horizon have an excellent chance of possibly achieving positive returns.
But here’s a caveat: The cliché that it’s not about timing the market, but time in the market is true. Since 1988, just missing a few of the best days in the market has resulted in significant lost opportunity in long-term returns. And over time, many of these best-performing days occur around and after a bout of market volatility, which underscores the importance of remaining committed to your investment plan.
Finally, remember that progress happens too slowly to notice, but setbacks happen too quickly to ignore. Here’s what we mean: In 2008, the market quickly lost 38%. And it was a huge deal. Books were written about it, and Congressional hearings were held. The market then slowly tripled from 2009 to 2015, and hardly anyone noticed. The lesson is that sticking with your investment plan is the key to a solid financial future.
The market is built to recover, which is why investors should keep a long-term mindset. Stay focused and determined and always keep the big picture in mind. Slow and steady wins the race.
Always remember: Your financial advisor is here for you in good times and bad. They can answer your questions and provide objective guidance to keep your mindset fixed on the longer term.
If you’re not working with an advisor, now is a great time to get support. Let us help you connect with a professional who will tailor your plan to your existing needs and long-term goals.
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.