We’re all about “real” money talk here at Spaceship (as evidenced by our Real Money Talk series) and so I don’t want to lie to you: yesterday I was really down about money.
I’ve had a long, arduous money journey. For a long time, I was just living within my means, and then there was a period where I did okay for a while after selling a business. But then came a period where I couldn’t work for years and hit rock bottom. It’s only in recent years that I’ve managed to lift myself back up — and that hasn’t been easy.
While there is a lot for me to be proud of, it shakes me to my core when I see the stock markets tumble, real estate prices skyrocketing, and my net worth taking a beating.
It’s at these times that I have to remind myself it’s about "time in the market".
At the moment, there are a couple of key factors that are unsettling the stock market.
The first is inflation.
In the United States, inflation is speeding up faster than it has in more than a decade. To be exact, since September 2008, which was right in the middle of the global financial crisis.
Inflation is a general rise in the price of goods and services over a period of time. When the cost of living goes up, you don’t have as much to spend. Which means, investment returns also need to rise in order for you to maintain your same buying power.
So, that’s why inflation can spook the stock markets.
Another key factor is a rotation to more cyclical stocks.
Cyclical stocks typically involve companies that sell “discretionary” items. In other words, the things you might buy when you have money to spend, as opposed to when times are tough. When the economy is doing well, you tend to see cyclical stocks also do well.
Although the pandemic isn’t over, countries such as the United States are starting to open up again, which means the economy is starting to strengthen, and investors are starting to push their money into those stocks that will benefit from a bolstered economy.
However, our investment team believes inflation concerns and the rotation to cyclical stocks are a short term issue, and we’ll continue to focus on long-term, more structural trends that align with our Where the World is Going (WWG) investment strategy.
With all that in mind, it’s still easy to feel spooked.
On a personal note, working at Spaceship means I’m seeing more noise around the markets than many people, and that noise can get loud.
I’m not immune, but I, like Spaceship, believe in the value of long-term investing.
We have a minimum suggested timeframe of seven years for anyone holding an investment in a Spaceship Voyager portfolio because, generally, when equity investments are held for longer periods they tend to exhibit lower volatility than those held for shorter periods. (Although, naturally, past performance is not a reliable indicator of future performance.)
It’s also worth remembering the “time in the market, not timing the market” philosophy whenever you feel spooked, because by trying to pull out of the market on a bad day, you could also end up missing out on a good day.
J.P. Morgan Asset Management’s 2021 Retirement Guide has some insight into this.
Over the 20-year period from 2 January 2001 to 31 December 2020, if you missed the ten best days in the stock market, your overall return was cut by more than half!
To be more specific, if you put $10,000 into the S&P 500 Index, and remained fully invested over the entire period, you’d have ended up with $42,231. If you had missed the ten best days, you’d have ended up with $19,347.
All this to say, it can be worthwhile to stick it out. Some people even use market drops to put in more money and potentially supercharge their investments.
Having said all that, you should absolutely make your own decision, a decision that suits your personal financial situation. Again, past performance is not a reliable indicator of future performance.
