It seems like in the blink of an eye, we’ve all lived through a once-in-a-lifetime pandemic with massive loss of life and jobs, and now we’re faced with inflation, mortgage rates on the rise, predictions that we could be headed for a recession by 2023, and Russia has started a war with Ukraine.
There is nothing quite as unsettling or as uncertain as war. It is impossible to predict, and history tells us how easily the whole world can be thrown into chaos. And we know that beyond the immediate concerns we all have for global stability and loss of life, which are paramount, we also have financial concerns. We’re worried about what’s happening in the markets, and what all this may mean for our investments and our long-term financial futures.
But we hope everyone reading this (and listening to our podcast) is resisting the urge to “take action.” People often flee to investments they feel are safer during times like these, like treasuries or gold, but for long-term investors, the stock market has historically been a good place to be during times of war. A year after Pearl Harbor, the S&P 500 was up 15%, a year after the invasion of Iraq the markets were up 35%. And during the 40+ years of the Cold War, we saw average returns of 10%. Also, most recently, studies showed that people who stayed the course during the 2008 recession and stayed in the markets fared much better in the long-term than those who pulled out, and tried to get back in at a later date.
All of which is not to say that the next few days, weeks, months will be pleasant for investors — or for consumers. We know that gas may hit $4 per gallon, and Russia and Ukraine are also big suppliers of wheat and other grain, so we could feel this in the supermarket as well.
But in this special episode, we’re getting strategic, we’re talking all these things out, and looking at ways that we can remain calm, maintain our long-term focus and stick to our plan. We’re doing it all with Ben Keys, the Rowan Family Foundation Professor at the University of Pennsylvania’s Wharton School. He studies issues related to household finance, real estate, and economics. He also serves as an Associate Editor of the Journal of Financial Economics, and previously worked as a staff economist at the Federal Reserve. Listen in as Ben offers up his thoughts on everything that’s happening in the economy today, and weighs in on the predictions that there’s a 50% likelihood that we’ll be in a recession by 2023.
We take a look at how many things in the financial world fall into two buckets: the things we can control, and the things we can’t. We can control our savings rates (at least to some degree), our spending, whether we take steps to set goals and develop a plan, and whether we seek out the help of a financial advisor. But we can’t control interest rates, the markets, the inflation rate. Ben walks us through all of these factors — and what is likely to happen with them near term… And if we should react.
“There’s certainly good reason to think about rebalancing and just keep a close eye on the mix of assets that you’re exposed to as rates rise,” Ben tells us. “There’s going to be more opportunities for bonds, basically bonds that have delivered very low returns in recent years, we’re gonna start to see most tending to deliver a bit better return and so that might be a better place to park some money that you had sitting around in a savings account where you said, ‘I’m not even going to bother with the bond market right now.'”
We also talk about real estate, because as mortgage rates have been on the rise, they’ve also now fallen as investors have fled to the safety of treasuries… So, what should home-buyers know about what’s ahead in the months to come? Unfortunately, Ben hints that prices just aren’t likely to come “way down” anytime soon — if ever.
We also talk about tools for keeping calm during times of uncertainty, and how to rebalance our portfolios during this time. We know many of you may have questions about what’s happening in the markets today, so please write to us at firstname.lastname@example.org, and we’ll put together a special episode to address your concerns.
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