From time to time, I like to highlight tips from Jonathan Pond’s Ponderings newsletter. It’s a great read if you haven’t subscribed before. Granted much of his advice may seem like common sense, but given the roller coaster that the market has been on as of late, between inflation, issues abroad, and more, I wanted to highlight his post this week, as I think it contains some timely reminders.
Investments Can and Will Lose Money on Occasion
As was learned in prior bear markets, you may notice your account balances drop quickly in a rather short amount of time. Funds can also be depleted on bonds if interest rates should rise, or bond issuers run into financial trouble. Sometimes even normally safer investments like money market funds or Treasury bills can get dinged as well because the rates that they pay out are usually so low that you lose money to inflation.
The Golden Rule of Investing
Short and sweet – “no one can consistently predict the near-term future performance of the investment markets,” says Pond. More often than not, if you’re relying on someone’s prediction, you’re probably headed for trouble.
Stock Market Does Not Equal The Economy
Finally, Pond points out that the stock market does not move in lockstep with the economy. As an example, the economy could perform terribly, but the stock market could look at the economy and go “meh” and continue to soar, such as what happened with the start of the pandemic in 2020. Or on the flip side, the economy could be golden, and the stock market has a cleanup on Aisle 5. The reason being is that the market as a collective is always looking way ahead – sometimes as far out as six months – and then reacting presently to what it’s seeing on the horizon.
In summary, Pond says while it may make it look like you’ll never be able to get ahead, this is definitely not the case, especially if you will need your money to last at least a decade, which can be sufficient time to smooth out the variance in the changing, but yet rising movement of stock prices.