Page 172 - September 2022

FINANCIAL PLANNING
WHY INVEST WHEN THE MARKET IS DOWN?
by Cade Peterson, Financial Advisor
What is EMOTIONAL INVESTING on positive returns and loses instrumental ground
the point of investing
if the stock market is underperforming? Why would you
want to take the risk? I have heard time and time again that we are in unprecedented times here in 2022. I do believe that to a certain extent. They just announced that GDP growth was negative for the second consecutive quarter and by definition that means we are in a recession. It’s critical
to have a mind of your own in this world we live in. We were told inflation was
Investors who don’t let their emotions dictate their investment decisions have learned a very valuable skill. The stock market is unpredictable and can be humbling in the short-term. As
soon as the market drops a fair amount, most people suddenly think they know what is going to happen in weeks and months to come. As an advisor, I’m always hearing about how this time is different. No amount of historical data can tame emotional investors because they truly believe that this time is different. When an investor sells, they have the mindset that they are going to wait until the market drops lower than when they
with their retirement nest egg.
BUY THE DIP
You may have heard the phrase “buy the dip” before. This refers to buying into the market when there is a dip in prices. The best visualization is to imagine a line graph. When the market declines, there’s a dip in the graph. On the following page is a graph to illustrate how beneficial it is to buy the dip. There are two separate hypotheticals that show adding $2,000 to the market when there is a drop of 8% or more in a month and
“transitory” and now it sits at 9.1%. Now we are being told by that we’re not technically in a recession, it’s just a slowdown in growth. The definition that has always
been accepted is this: Two consecutive quarters of negative GDP. I have made
it very clear in my last few articles that a recession is very likely. Government policies in addition to supply chain disruptions and politically charged lockdowns created our current environment of stagflation. Let’s look at how we can take advantage of these downturns in the markets.
originally sold. Here’s my response to that: If the current market conditions are causing an investor to sell, why would they want to buy when the economy is in a worse condition? This is of course the logical thing to do. If possible, you want to buy low and sell high. The scenario that tends to play out is that the investor waits too long to buy because they don’t want to invest during choppy markets. The recovery comes fast, and it is here before you know it. Once the investor holds their cash for too long and they miss the recovery,
they will continue to wait until the market drops below the levels when they sold, pushing them into a never-ending cycle. The investor wants to justify their decision and in doing so, misses out
moving $2,000 into 30-day US T-Bills every time the market dropped 8% in a month. The initial investment is $10,000 and it shows the growth from 1982. Adding $2,000 during the dips accelerate the growth and you can see on the blue portion that it grows to $1,499,860. The investor that moved $2,000 into T-Bills and sold equities when the market dropped saw his portfolio grow
to only $605,546. The investor that didn’t allow emotions to affect investment decisions and added when the market dropped was able to grow their portfolio by nearly $900,000 more than the one who shifted to safer investments during periods of volatility.
170 SPEEDHORSE September 2022