Episode Summary:
In this week’s episode, we discuss the recent volatility and decline in the stock market. It’s been a wild ride in 2022! With a dramatic pullback from recent stock market highs, it can be stressful to watch your investments. We discuss some of the reasons behind the declines and share some advice on how to handle bad news and make sure you make solid decisions with your investments.
Episode Notes:
If you’ve been watching the stock market in 2022, it’s been mostly bad news. High-flying stocks from 2020 and 2021 have been crushed. Solid favorites have dropped dramatically, and all the headlines are talking about recessions.
We recap some past episodes where we discussed how the economy works and inflation, and then dig into what’s likely impacting the recent market declines.
- Covid required an influx of liquidity because the economy ground to a halt.
- Fed lowers interest rates and starts pumping cash into the economy.
- The government started providing stimulus to consumers, including increased unemployment.
- More money and lower rates drive prices up because people are less sensitive.
- Inflation starts to take over and prices skyrocket.
- Fed needs to raise interest rates to lower inflation. But higher rates makes borrowing to grow expensive and slow down business, which in turn freaks out the stock market.
The fed’s job is to balance the economy, and this is all cyclical. It’s happened many times before and will happen many times more. This is about taking emotion out of investing and how to discipline yourself into making better decisions. We encourage everyone to look at the market’s performance over time and have a broader perspective. We discuss some of the pitfalls to avoid with investing in the stock market. We wrap up the discussion with our advice on what you should do during any stock market decline.
Top 3 takeaways:
- We’re in a normal cycle of inflation, tightening fiscal policy, and stock market correction. Don’t freak out.
- Don’t gamble with your money. Invest consistently through ETFs to lower your risk.
- When things seem really bad, resist the urge to make emotional decisions. By the time you’re freaked out, the chances are that the worst is over.
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