Understanding Market Moves

• Markets tend to go up over time
• Invest, don’t trade. Staying invested is key to long term success
• The economy is strong and consumer spending has rebounded
• Put your investing strategy on auto pilot with Auto-Stash

Greetings Stashers:

I’m reaching out to help you make sense of markets right now. If you’re confused by the roller coaster we’ve been on in recent days, you’re not alone. 

The market volatility we’re experiencing is in many ways irrational, but it’s also based on some pretty fundamental changes over the past few months. I have been tweeting about this for the last few days.

Inflation is at a 40-year high of nearly 8.5%. Most of us have never seen price increases this high in our lifetimes. This kind of inflation is almost like a tax on the money you earn, wearing away at the value of your weekly paycheck, and making things more expensive every time you go to buy groceries or fill up your car with gas. Such a dramatic increase in the price of your regular expenses feels a lot like taking a paycut, and can cause a lot of financial hardship for everyone if not corrected.

Rising interest rates and a strong economy

In order to set things right, the Federal Reserve is trying to engineer a soft landing for the economy by raising interest rates. Increasing interest rates is kind of like pumping on the brakes of a speeding car. It makes borrowing more expensive, for both businesses and for consumers. (One place that’s been seen and felt is in the mortgage industry, where the rate for the typical 30-year mortgage has risen two full percentage points in just a few months.) But markets are reacting because rate increases tend to put pressure on company earnings, particularly for some of the fast-growth technology stocks that have been responsible for the biggest market gains since the beginning of the pandemic. The worry is that the Fed may act too aggressively, and unintentionally slow the economy too much, leading us into a recession. 

Here’s the good news: the economy is strong. The unemployment rate is at its lowest rate since the 1970s. This morning, the government reported continued strong job growth.  Wages are on the rise for many workers.  Employees are in the driver’s seat, demanding new jobs and higher pay. Consumer spending has also rebounded as people return to dining out, vacations, and other things they put on hold at the beginning of the pandemic.

Invest, don’t trade

We always say never to trade, but to invest. Trading is an attempt to time the market and guess which direction it will go in the short term.

Timing the market is extremely tricky, and staying invested is key to long term success.  Despite some of the volatility we’ve witnessed over the past few days, as of last night the S&P 500 is down only 0.5% over the past year. More importantly, taking a longer term perspective, it is up 41% over the past 3 years and over 200% over the past 10 years. Numerous studies have found that investors who try to time the market, and sell when markets experience volatility, tend to miss out on the big gains that typically follow. 

A year ago, Bank of America did a study showing returns in the market since 1930. Here’s what they found: From 1930 through 2020, the market was up 17,715%. However, if you excluded the 10 best days each decade, basically one trading day per year, the overall return would only be 28%. 

Over time, markets tend to go up. You’ll notice this chart includes some pretty steep sell-offs in the past, such as the Dotcom bust, the mortgage crisis that led to the recession in 2009 and, more recently, the sell-off that occured in March 2020 when the Covid pandemic began.

*This  graph is not a prediction or projection of performance of an investment or investment strategy. The rate of return on investments can vary widely over time, especially for long term investments including the potential loss of principal. Source: Yahoo Finance. Past Performance does not guarantee future results.The rate of return on investments can vary widely over time, especially for long term investments including the potential loss of principal. For example, the historical average annual rate of return on the S&P 500 is around 7.5%. Source:FactSet, annualized return for the period of 1/31/2001 – 2/11/2021.) The lowest 12-month return was -43% (March 2008 to March 2009). The S&P 500® is a market capitalization weighted index and one of the common benchmarks for the U.S. stock market. Investing involves risk including the loss of principal. This information is for educational purposes only and should not be construed as investment advice.

It’s normal to feel nervous when the market goes down, but panic selling can hurt your portfolio rather than help it. We think it’s best to focus on the long-term, invest in a diversified portfolio, and automate investing with Auto-Stash. 

Whether markets go up or down, you should stay the course and only look to change your plan when your personal circumstances change (not when the market moves one way or the other). Auto-Stash can be your best friend right now, allowing you to buy investments at lower prices. I want you to look back at this time in a few years knowing you picked up investments throughout the entire market cycle.. When you build your portfolio, we recommend buying a mix of bonds and stocks, both inside the U.S. and in other locations globally. If you already have a diversified portfolio, bravo—keep adding to it on a regular basis. 

Another option is to consider Smart Portfolio. You can find this in the Stash app or upgrade your subscription to our Growth plan. It’s a personalized portfolio that Stash’s investment team of financial experts developed and recommends for you based on your risk profile. We recently added a small exposure to cryptocurrencies in Smart Portfolio. While cryptocurrencies tend to be volatile, we believe this small exposure could help long-term performance, especially during periods of high inflation. 

Follow the Stash Way

The Stash Way is our investment philosophy regardless of market volatility. It emphasizes regular investing, investing for the long term, and diversification. Simply, consider putting small amounts of money in your investments, on a regular basis.  We make this easy with Auto-Stash. Now, more than ever, is a time to set it and let Auto-Stash work its magic.

Long-term investors (that’s you) shouldn’t be concerned with timing the market, it’s about time in the market. I’ve said this before and I’ll keep saying it—no one can predict exactly what will happen tomorrow or next week.

Here at Stash, we are looking out for your best interests and we’ll keep sending you these types of messages to follow The Stash Way of investing.  Stash+ subscribers will also get a deep dive into what’s going on in the market in this month’s Market Insights Report.  We’ve got your back and will keep you informed and educated about the markets and long-term investing.

I am so excited for the future,

Brandon Krieg, CEO & Co-Founder