Regardless of how you feel about the market these days, one thing is for sure… these last few months have been uncomfortable. And we’ve seen this first hand with Wela users and Wela clients alike! It’s uncomfortable for anyone, including us, to watch our investment accounts ride this roller coaster. It messes with our emotions.
But here’s the good news for your portfolios… the bull market still lives! To be honest, the exact definition of what defines a bull market vs. bear market actually lies in a gray zone, but at the end of the day, bull markets go up for an extended period of time and bear markets come down for an extended period of time. Corrections, like we’ve seen here in the last couple months, are actually a normal (and necessary) part of a bull market. Almost like it's bringing us back to reality.
Think of a correction like spring cleaning. Nobody likes to do it, but it’s an important aspect of keeping our house/lives/finances (whatever we’re cleaning) in order. Here’s the real takeaway, though, stock markets don’t cause recessions. Weak economic data causes recessions. And the good news is, our economic data doesn’t look too bad.
Here are a few highlights on our positive economic data:
- Monetary policy is loose and will remain that way even when the Federal Reserve starts raising interest rates
- Marginal tax rates are not high by historical standards
- Trade policy continues to move in a direction of lower barriers to international trade
- The Federal government could certainly find ways to spend less and reform entitlements, but our government is not growing as quickly as it did in the prior decade
- Financial firms are better capitalized than they’ve been for years
- Corporate balance sheets are loaded with cash
- Households’ financial obligations are hovering near the smallest share of after-tax income since the early 1980s
This isn't a recipe for a recession.
Think back to 2011, the S&P 500 fell by 19.4% from April 29th to October 3rd. Since that drop, we’ve gone up about 80% even with this recent drop. And there have been plenty of other 20% drops in the market over the past 30 years. I don’t know about you, but looking back, I would have loved to have bought as much stock as I could at each drop because, effectively, I'd have been buying on sale!
Our point here is to remind you that it’s important to sift through all the noise you hear out there and get back to the fundamentals of investing. At Wela, we believe it’s important to pick an asset allocation that’s appropriate for you, given your situation and based on your goals and objectives. The changes you make to that strategy should be based on your situation… like nearing retirement for instance. It's not based on what the latest talking head is saying on TV.
At Wela, we use a philosophy called OYA. You can learn more about the details behind this investment strategy here, but we're primarily trying to keep investing simple. You "own your age" in your investments.
The movements of the stock market and the current economic climate are things that we talk about every day over at Wela. This article is pretty general, so remember that maybe you don’t need to be in the markets. Or maybe you want to be in the markets, but you just don’t know when or how to get in. Whatever the case, contact us and ask our team any question. We will get back to you within one business day. We want to make it easy for you to ask questions and not feel like you have an obligation. Wela (which by the way, is an old English word for wealth) is trying to lower the intimidation factor to delivering financial advice.