In every crisis scenario, investors start asking questions like “will this time be different?” or “should I sell everything now and wait for the bottom?” This is human nature. Most of us are risk-averse, and part of the whole reason we invest is for capital preservation. Accordingly, sharp market selloffs like the one we experienced last March can provide some negative feelings about investing and keep some investors on the sidelines temporarily (or worse permanently).
Investors need to take a breath when they see headlines about a market crash being imminent, or rising bond yields creating structural headwinds stocks can’t overcome. Yes, stocks are expensive right now. By some metrics, stocks are the most expensive we’ve ever seen. However, remembering that market corrections are normal, and over the long-term, stocks tend to outperform most asset classes should give investors some sense of calm.
I think right now, a lot of what we’re seeing in the markets is not going to be permanent. That said, I do think interest rates are unlikely to rise substantially from here long-term. There’s just too much debt in the world, and governments are likely to act in their best interests to keep interest rates low to support budget deficits.
That said, concerns about inflation today may be overblown. Investors need to remember that we’ve been in a slow-growth environment for decades now, and thinking this will all change in a few years is unlikely, in my view.
Invest wisely, my friends.
