It’s easy to get discouraged when the bad economic news just keeps coming. Inflation persists without any meaningful sign of a letup; the Fed will be forced to raise rates again in its effort to try to rein in runaway prices. The financial markets have taken a beating and continue to get clobbered on a regular basis.
What’s an investor to do? How do you hold hope for your dreams when it takes all you have to refill your gas tank? What will happen when the weather turns?
Economic times are certainly tough. There’s no shortage of dark clouds. Consumers are feeling the pinch of a protracted period of high inflation like we haven’t seen in 40 years. For many people, that means not in this lifetime. Gas prices are down from their peak, which leaves them up about 75 percent over two years ago. That may not feel like much to celebrate.
Dark times indeed.
But all is not lost. We have history on our side and as our guide. We, or those who have traveled these paths before, have gone through similar dark times and flourished. They leave behind the legacy of a trail to follow. We can see what worked in the past and apply those lessons to today.
Always Keep the Long Term in Mind
If there’s a single lesson from the past that applies to the present, it is to keep a long-term perspective. We’ve had runaway inflation before, and then it was gone. We’ve had exorbitant gas prices before, and then they normalized. We’ve faced, at some point in our history, nearly every economic adversity imaginable, and then we didn’t.
Adversity is temporary.
The bad news continues to come until it doesn’t. That’s what the past tells us, that the end of the cycle comes; every time, without fail.
The past also tells us we don’t necessarily get warnings when things are going to turn. We stay in the dark for a while, then we get some light. We don’t know when or from where that light will come, but it does come; it has come, every time.
We also know that when things turn for the better, we want to be all in. If we sit on the sidelines, we stand to miss the greater part of the opportunity. That’s what we know from history. The initial recovery is often strong. You know that you’re in a recovery phase once you’re in it, not before.
The long-term perspective is to know that though this is unpleasant, it’s not new. There is nothing happening, economically, that hasn’t happened in some similar form before. We still move forward in the same way, taking advantage of the same opportunities, and strive toward our same goals. The basics have not changed.
We cannot predict the bottom of financial markets any more than we can predict the top. Financial markets are not something we can time.
We need to be in the market, not to try to time the financial markets.
In the long term, it’s always time in the market that matters.
That’s not to say there’s nothing we can do. We should review and rebalance our portfolios. We should continue to make systematic contributions, and if possible, increase them. Down financial markets are still a buying opportunity. History tells us that, too.
We should continue all the basics: reducing debt, building, or maintaining emergency funds, funding college and retirement goals, maintaining and reviewing protection plans. These are all things that serve us in the long term, and the long term doesn’t change because the short term is uncomfortable.
This too shall pass and keeping a long-term perspective will have us best positioned for whatever life next brings our way.