Omicron (Covid-19) transmission intensifies. interest rates rise The pessimistic news, such as inflation is also rising, drives the stock market further into a bear market.
Newspapers and broadcast media invariably use provocative words such as “plunge,” “tumble,” and “bloodbath,” making investors more anxious. When I watch my precious assets fall, I start to get scared and leave my anxious mind. I have to change the money I invested into cash, but my mind wanders every day.
When the stock market goes down, investors want to know why and in what direction the stock market will move in the future. So I search the Internet hard and focus my eyes and ears on newspapers and broadcast news, but I can’t get a cool answer. It is impossible to accurately predict the stock market.
If we look at the results of the stock market from 1970 to 50, once every 2 years it fell by 10% (Correction), once every 4 years it fell by 20% ((Bear Market), and once in 7 years it crashed by 30% (Crash). The decline in the stock market is not surprising, because it experienced a shocking decline of 48% in 1973-1974 and 50% in 2000-2002. As such, the stock market clearly experienced declines and crashes.
Investors should put aside their anxious minds about the stock market decline and their desire to predict the market for a moment and think about what the stock market is from a big perspective. Stocks are not just numbers, they represent real values. In other words, you own part of a company. Businesses are the basis of the economy, and the economy is the driving force for development.
The United States has experienced many social and political experiences, such as Black Monday, Iraq War, 9/11, natural disasters, financial crisis, European currency crisis, trade war, etc. Diseases are also SARS, Swine Flu, Bird Flu, West Nile, MARS, Every time Ebola, etc., the stock market experienced a decline, but in the end, it overcame everything and the gross national product (GDP) rose steadily, and it is still going on. This is because people are constantly striving for a better tomorrow than today. Last year, there were 980 publicly traded companies in the United States.
Since the end of March 2020, when the coronavirus began, the net worth of all Americans has risen from $110 trillion to $137 trillion. (For reference, $1 trillion means $1,000 billion and $1 billion means $1,000 million). Net worth refers to the assets remaining after deducting all debts, such as home loans, credit cards, student loans, and car loans, from houses, stocks, bonds, cars, and cash.
It should be remembered that the economy rises by repeating corporate profits and growth, but the stock market rises and falls sharply in a short period of time according to the fears and greed of many investors. When the stock market goes down, it’s certainly not a pleasant feeling, especially in a rapidly falling stock market. However, 22 of the 36 past 10% declines were less than 104 days. A falling stock market is scary, but it means that the period of a down period is very short.
When looking at statistics on a monthly basis since World War II, the U.S. economy has declined only 14% of the month, and has risen 86% each month. Without the investment risk of a stock market decline, you cannot get a return on the stock market.
The U.S. stock market has averaged an average of 16.03% over the past 13 years through 2021. This is an incredible return on a $100,000 investment that has grown to nearly $700,000. The long-standing stock market average of the past 90 years has averaged 10%. A 10% rate of return is the rate of return at which investment money doubles every 7.2 years. While we cannot accurately predict future stock market returns, our long history gives us a baseline. It is a fact that the return on stock investment over a long period of time has clearly been higher than inflation.
Concentrating on the broadcast media to find a solution to the stock decline, the mood becomes urgent as if you have to make a decision. You can make a desperate and dangerous decision to grab a falling knife with your hand. In a declining stock market, it would be far more beneficial financially and mentally to get away from all broadcast media for a while and spend some fun time with your loved ones.
Myung-Duk Lee, Ph.D., Registered Investment Adviser (RIA)
Copyrighted, Dr. Myung-Duk Lee’s Financial Column All rights reserved.