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Investing is Hard

Investing Insights

Brennan McCarthy, CFP®

One of the most common investment moves in late 2022 was a “tactical” move selling out of stocks and bonds, and into a guaranteed money market fund.

The risks were plenty: at the time, the consensus opinion among professional financial forecasters was that there was a greater-than-90% chance that a recession would sweep the United States in 2023, and that inflation was going to remain out of control. The truth is that the US economy has never gone from a period of high inflation to a period of low inflation without a recession in the middle, so it would be foolish to think this time would be any different. On top of that, the S&P 500 was coming off October lows of being 25% lower than the all-time highs of early 2022. Statistically speaking, bonds had their worst year in 2022 going all the way back to the 70’s, and the real estate (which is highly sensitive to interest rates) market was all but stalled out. Consumer sentiment looked terrible.

There were also plenty of major geopolitical risks; the war in Ukraine continued to rage on with no end in sight, and the attack and subsequent war in the Middle East wasn’t even on the radar for most investors yet. In the US, we were staring down the barrel of more than 1 pending government shutdown with a Congress that was unable to pass anything, a handful of regional banks were on the verge of collapse (remember Silicon Valley Bank?), and the crypto markets had crashed with signs of much greater problems (remember Sam Bankman-Fried?). The point is, I could continue with all of the bad things that were being predicted for 2023.

On top of that, Money Market funds were paying north of 5% interest that was guaranteed. The common thought was: why would I take those risks if I can take my 5% return with no downside?

With 2023 in the rearview mirror, the answer to that question became frustratingly clear. Again. Although those invested in money market funds at 5% did barely beat the rate of inflation, they were crushed by just about every other area of the market comparatively speaking. The S&P 500 is up more than 30% since the beginning of the year, and bonds and real estate have both begun mounting a raging comeback after a difficult 9-10 months of 2023.

For those who like to pay attention to the news, it's hard to ignore the noise from the charlatans in financial media barking out the risks we face. But the fact remains: there will never be a time period with no risk, and staying invested in the market will beat trying to time the market 99/100 times, every time. The ones who will have the most success investing over their lifetimes are the ones who stay invested over the long run, regardless of what people are saying.