Global markets pulled back again last week following the Fed's announcement that it would tighten by another .75% and keep rates higher for longer. Major indices are back to their June market lows with the S&P 500 falling 23% year-to-date and the Nasdaq down 31%. Bonds have also struggled as all interest rates have jumped, with the 2-year Treasury yield rising to 4.2% and the 10-year to 3.7% - the highest levels since 2007 and 2010, respectively. Investors have been navigating this challenging market all year and, for many, it may feel as if there is no relief in sight. How can investors see beyond recent market swings and short-term headlines in order to achieve their long-term financial goals?
In times like these, staying the course can be difficult but history shows that it is ultimately rewarded. Nearly all investors understand that markets naturally swing on a regular basis and that the economy tends to operate in cycles. Still, this knowledge doesn't make it any easier to avoid overreacting to large market moves. Despite the importance of having an understanding of investment analysis, financial planning and portfolio construction, it's often our own behavior that has the biggest impact on achieving financial objectives. Investors understandably prefer to wait for the "perfect" time to invest, which often translates into waiting until it feels safe and comfortable to do so.
The reality is that no market environment is ever perfect, whether it's the challenging period following the 2008 financial crisis, a pandemic in 2020, or in the early 1980s when the Fed was last battling rising inflation. Waiting until investing feels comfortable tends to backfire. When viewed with perspective, how investors feel often turns out to be a contrarian indicator since investors are most confident when markets are at their peak, and most uneasy when markets have already bottomed. Warren Buffet has been known to say that having the fortitude "to be fearful when others are greedy, and greedy when others are fearful" is what rewards investors over long periods of time. Investing when others are bearish may feel uncomfortable, but this is when prices and valuations are the most attractive.
