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Investing in chaotic times like this requires perseverance and planning. If you can handle it, a falling stock market could be an opportunity for the visionary.
But I won’t put any money into stocks until I’m sure I can pay the bills first. Once key expenses are calculated, and as long as you can afford some short-term losses, broadly diversified, low-cost index funds are a great way to invest in the overall stock market. This approach eliminates the risk of holding the wrong specific stock at the wrong time.
History shows that the U.S. stock market always recovers from past declines. If you put your money in stocks, you’re only down 6% over 10 years. In more than 20 years, the market has never fallen. Of course, there can always be a first time, and the experience of losing money for a long time can be unbearable. That’s why it’s important to hold high-quality bonds or other safe investments, and make sure you have money set aside for emergencies.
Predicting when a bear market will end and when the next bull market will begin is a futile task, with one big exception: Fed intervention will be an important indicator of the changing fortunes of the stock market. Right now, the Fed is raising interest rates and taking other measures aimed at slowing economic growth and lowering inflation — moves that are driving stock market prices lower.
If the Fed reverses its current course and starts flooding the economy again, as it did in 2008 and 2009 and in March 2020, the odds of a new bull market will rise significantly. For now, though, fighting inflation is the central bank’s main priority, signaling a sharp rise in interest rates, one of which could be announced this week.
Audio by Jack D’Isidoro.