If you started investing around April 2020, you are likely to have a wrong idea of what investing is all about and what it takes to thrive while investing. After the March 2020 low (caused by fear of COVID-19), the S&P 500 rose by more than 60% at year-end. Also, it is likely that any individual stock that you invest in then will return a covetable ROI. In essence, there was literally nothing to worry about in such a market and time. No doubt, 2021 would have exposed you to a different side of investing.
After Joe Biden won the American election and doubled down on the vaccination, investors started doing what is called a rotation. A situation where investors reduced their stakes in one sector and increased it in another sector. In this case, it was a move away from tech stocks to the utility and energy sectors. Then followed concerns over inflation, and then followed a series of regulations from China. At some point as well in the US, there were lots of vacancies and no one to fill them (labour shortage). Then the crypto market nosedived, and the Securities and Exchange Commission in the US made statements suggesting more regulations. The list could go on because, in the world of investing, there is no end to events that cause worry. And oh, I have not mentioned the most recent Evergrande issue that has infused fear in the whole world of investing from bonds to stocks and from real estate to crypto.
Since there is no end to these series of events, it helps to know what is good to worry about and what one need not even give much thought to.
Before that though, the truth is that despite all the bad news, the stock market is up 16% YTD, was up 18% in 2020 and has averaged 10% in the last 30+ years. This sends us an important message that no matter how bad the news may get, the world is set up for more prosperity and the stock market is a reflection of that reality. And this is not just about the stock market alone. The Crypto market was nonexistent some 10 years ago but today it has a market capitalization hovering around 2 trillion dollars.
Looking at all these facts, it is fine to conclude that indeed not all news is worth panicking about. In fact, the best conclusion is that most are best ignored.
The only thing that matters
Your purpose of investing will inform what you need to worry about. For this article, I will assume you are investing for the long term since that is what we encourage at Rise. For those who are investing with a long term outlook, the only thing you need to worry about is the quality of the business you are investing in. You have no business keeping track of inflation, unemployment and the likes. Just the business alone. And if you are investing with Rise, we have even taken that worry off your hand with our array of investment opportunities as well (stock, real estate and fixed income).
It seems my conclusion is to tell you that you have nothing to worry about. Yes, that’s exactly it. Bad news will never stop coming. There will be a flood of them.
Here’s the thing though, while all the bad news is not worth worrying about, awareness of them and their implication can be a great calm. So let me also give you a general framework for accessing them.
- All bad news will cause the market to panic and prices of assets drop. What you should concern yourself with here is to confirm to what extent this bad news affects your investment.
- All good news is not weighed equally. As we noted in this article, sometimes, even amidst a lot of good news, asset prices could still fall. Yes, when the “good news” is not good enough, prices fall.
However, businesses are resilient, one bad news or even a series of bad news is often not enough to make them lose their entire appeal. Therefore, it is important to keep this principle in mind and know that the right question to ask is “how does this affect the company(ies) in my portfolio?”
Often, you will learn that it doesn’t affect it so much. And you can learn to ignore the noise and focus on what matters.
And for those who use Rise, you can rest better knowing that you have an investment team that does the worrying so you don’t have to. Just fund consistently and enjoy the journey.