Hurricanes can come in various forms. Whether they be the recent Ian and Nicole or the staggering Sandy of 2012 they tend to strike in the fall season. Also, in the fall come U.S. elections and historically a bit of stock market volatility. Like the weather, markets are anything but predictable. Elections can lend themselves to predictability but there are always surprises too.
This year has had a mix of all these factors. Currently amidst high inflation the stock and bond markets are trying to digest an environment of much higher and increasing interest rates – exactly how much higher is an unknown. Also unknown is the post-election reality of future policy making in Washington, DC. Interest rates are “driving the economic bus” for the time being, and government policy making will be an ongoing force running alongside. Both will affect the markets in positive and negative ways over time.
Getting through hurricane season can be a relief – but only if it is known that the storm is over. Is the storm over or getting close to being over, and where does all this leave investors and savers?
The US economy will most likely experience a recession, although the timing, extent and duration are all unknown. In this unpredictable scenario, continuing to diversify a portfolio can help – with a healthy amount of cash on hand for both lifestyle and emergencies. Consider:
- Current interest rates make holding a specified amount of cash more attractive than earlier in the year and versus recent past years. An allocation to cash is prudent no matter the economic forecast.
- Stocks tend to reward long-term investors and eventually can contribute to keeping up with inflation.
- Short-term, high-quality bonds can offer somewhat predictable returns – but more so when the Fed is slowing or ends the pace of interest rate increases (still an unknown).
- Continuing to invest periodically – with advice – can add to long-term returns.
- Liquidity, or how easily an investment can be turned into cash, is paramount when market volatility sticks around, or an economy slips into recession. Liquidity is almost always a good thing.
None of these pieces of advice are new. Often, with adequate preparation, waiting out the storm (a timeless piece of weather and investing advice) in the form of staying invested or predetermining an asset allocation can provide peace of mind and relatively calmer after the storm.
Thank you for reading, Happy Veterans’ Day and TGIF!