Surviving The Ups, Downs, and More Downs in Today’s Investment Climate

Every investor is being tested today. 

The news coming daily from Washington and Wall Street is predominately negative. The top articles in the New York Times and Wall Street Journal are primarily negative. The Federal Reserve Chairman has nothing positive to say as the steward of the economy. And, sadly, many have lost faith in the leadership and direction of our country.  Plus, this has been the worst investment year since the recession of 2008-2009, with two of the five worst one-day investment losses over the last 50 years happening in the previous few weeks.

The key phrase here is Behavioral Finance. 

According to Webster, behavioral finance is an area of study focused on how psychological influences can affect market decisions. In easier-to-understand English, it’s how all of us digest both positive and negative news and headlines to make investment decisions, even personal decisions. As virtually every print and electronic media outlet are negative today, many investors are selling or escaping their investments to avoid more downside. 

The Short-Sellers are having their best year in more than a decade. The Commodity Traders love 2022 as prices on all goods are moving northward with inflation. The politicians are focused on either getting re-elected to preventing the other Party from taking control in 2023. Finally, the average long-term investor (that’s the rest of us) is currently left bleeding red investment ink.

2022-2023 will inevitably be reviewed as one of the best buying years in this decade. But, of course, that doesn’t change the pain the average investor is feeling.

What can you do? 

Moving to cash today will feel better as this will avoid more losses, however, it’s also the exact opposite course of action that the long-term investor needs to do. Note that this is exactly Behavioral Finance.

Every investor should look at their risk profile and make sure that they are comfortable with their portfolio allocation and diversification.

This may be the time to lower your level of risk and sleep better at night.

This also means potentially moving from Growth to Moderate Growth, or from Moderate Growth to a Balanced Portfolio, or perhaps Income-Producing Portfolio. Blending might even be a good strategy for you.

The patient and prudent investor always wins long-term.