Do you currently suffer from sleepless nights about your investments and/or your capital because of all the turmoil in the world and the market? What’s the strategy?
Here is a corny statement right at the beginning (which is true tough):
In EVERY epoch there is a bull and a bear market.
There is always something going up and there is always something going down somewhere. There is always something outperforming and there is always something underperforming.
Yes, ideally, you want to adapt your portfolio to the current situation. More precisely: Capitalize on each epoch, and that is what creates the (consistent) returns. Easy theory, right?
I know, we are in a time, where the upswing is very hard to find. I’m talking about the 5-8% return p.a. portfolios – consistent 5-8% return makers.
And inflation being higher than these numbers… – you see where the journey is going, right?
The best traders have their “all-seasons” portfolios, which underperform a bit during heavy bull markets, but outperform the average returns (or compensate losses) in bear markets. Do you have such an “all-season” portfolio? I assume the average person does not, which is not a shame because it surely can be quite complex at the micro level, and most people just don’t have the possibility of gathering and applying all the required knowledge.
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But what can we, the average person (yes, I’m talking about you and me), do?
First of all, concerning me, I’m trying to define what’s going on: What is going on in this specific epoch? And then: What is the best I can do that is obvious and applicable right away?
I think protecting losses is a key element at the moment – even more important than during other times. (According to the first investment rule anyways: Never lose money.)
Because unstable markets and political regimes make it especially hard to “just go with the flow”, means, benefit from the economic upswing we had prior COVID or shortly after the drop because of COVID from early 2020 until early 2022.
But how could such a protection look like? One thing could be in fact guarding the capital and not buy into anything big within this high volatile market. Profits are probably marginal anyways (and inflation eats it up), and the risk of loss is especially high.
Also, chances are, that you are already making losses – which is totally OK by the way (in the sense of financial theory) and no reason to curse the economic system per se, and therefore deciding to throw in the towel once and for all.
However, if you can still rely on a solid cash flow because of a monthly salary or because of profits from business ownership while investing into a saving plan (like into an easy and tax-friendly ETF saving plan, which is very popular) on a monthly basis, I would not recommend pausing or quitting this saving plan.
What About That Inflation Thing?
But wait: What about inflation? It is true: If you have saved $50.000 and the inflation is 10%, you have $5.000 less purchasing power at the end of the year. Theoretically, you would need to raise your monthly saving rate now to around $420 per month (!) to compensate. Possible for you?
I put a table here with some different inflation numbers (4%, 6%, 7%, 8%, 10%) to illustrate what happens to our dear capital when we just leave it under the pillow:
| Year | 4 % | 6 % | 7 % | 8 % | 10 % | |
| 1 | 2022 | $100,00 | $100,00 | $100,00 | $100,00 | $100,00 |
| 2 | 2023 | $96,00 | $94,00 | $93,00 | $92,00 | $90,00 |
| 3 | 2024 | $92,16 | $88,36 | $86,49 | $84,64 | $81,00 |
| 4 | 2025 | $88,47 | $83,06 | $80,44 | $77,87 | $72,90 |
| 5 | 2026 | $84,93 | $78,07 | $74,81 | $71,64 | $65,61 |
| 6 | 2027 | $81,54 | $73,39 | $69,57 | $65,91 | $59,05 |
| 7 | 2028 | $78,28 | $68,99 | $64,70 | $60,64 | $53,14 |
| 8 | 2029 | $75,14 | $64,85 | $60,17 | $55,78 | $47,83 |
| 9 | 2030 | $72,14 | $60,96 | $55,96 | $51,32 | $43,05 |
| 10 | 2031 | $69,25 | $57,30 | $52,04 | $47,22 | $38,74 |
At the moment, we have in fact around 10% inflation. That means after 1 year our $100 is only worth $90. And if inflation stays that way for 10 years, our $100 is only worth $38,74. Pretty Meh indeed!
Look At It With Interest (I mean Curiosity)
However, I firmly believe in the financial principle of “Time in the market trumps timing in the market every time” still applies.
But what about the predicament of protecting capital and fighting inflation? Aren’t these two things working in different directions? I think Yes and No.
If you have assets that provide (even a little) profit (be it dividends, rent, etc.): Awesome!
If you don’t: I would not try to go for the big swing and investing too much just to chase my possible accumulated current losses. I’m pretty confident, time will even it out. You could also look it this way: Everything your saving plan purchases now, comes with a discount.
And if you are able to stick to your saving plan as best as you can, even with baby-steps, you will be super happy you did when the bull market is back. It’s pretty safe to say it will.
PS: I currently read the new book by the highly respected Edward Chancellor about „The Real Story of Interest“ (second title). If you not only want to learn about the history of interest but also sharpen your opinion about the decisions of the FED or ECB, this book is a must read. You can purchase the book directly here via the Amazon-Affiliate-Link: „The Price of Time. The Real Story of Interest“
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