Survival Tips for Long-Term Investors During Volatility

Survival Tips for Long-Term Investors During Volatility

Like its effects felt at the gas pump, grocery stores, et cetera, talk of inflation is hard to avoid. That can make the situation feel inescapable, but it really does not have to be. 

Investors have other choices, even now. However, panicking should not be considered one of them. So, what follows are suggestions for keeping your head when others start panic-selling around you.

Is Inflation Always a Four-Letter Word?

True or false: Inflation is always awful and never brings any good to anyone anywhere.

Nobody could blame you for rolling your eyes and muttering, “True, genius!” in response.

However, the real answer is false: In times of lower inflation, the United States government actually works to avoid its complete absence. Believe it or not, they want it kept to around 2% per year.

The reason why is that if it goes any lower, the economy could descend into deflation. As mean as inflation can be, deflation is actually worse because it could potentially become a recurring cycle. 

During inflationary times, interest rate hikes by the government can eventually start the recovery process. On the other hand, a deflationary spiral is far harder to escape from.

So, as wild as the market gets some days, things honestly could be much worse than they are. Nobody makes their best decisions once they have lost it, anyway. 

We understand the temptation to worry. As human beings, we are naturally wired for short-term thinking. This was beneficial back in ancient days when saber-toothed cats snatched the unwary from beside a cooking fire.

Back then, focusing solely on the here-and-now kept us alive. The problem with this today is that successful investing requires the opposite: People who fail to keep an eye on the long-term are the ones in financial danger.

Panicking Never Pays

There are multiple reasons why we need to keep looking down the road, even now. The first is that even great investments sometimes see periods of lowered value on the market. 

Imagine that we time travel together, going back decades. Once we are there, we buy positions of stock in a company that will one day be known as “International Business Machines” (or IBM). 

Now fast forward to the 1970s. Inflation was skyrocketing then, too. Maybe today’s supply chain issues somehow followed us back through time, so we will say that they happened at this point in history, too. 

Being technology-based, not-yet-huge IBM struggles like many tech companies are today. The chip shortage means they fall behind in production, and as a result, their stock’s value on the market declines.

In response, you should sell all your IBM shares right away, right?

Wrong: When the supply chain issues are eventually resolved, that stock’s worth is almost certain to go back up—and gain above its previous high point, sooner or later. 

The smart reaction is not to sell off but to add more shares. Granted, not every stock today is another IBM to-be. Nevertheless, this is exactly what is happening with some promising tech companies today.

Their market value is temporarily lowered due to current conditions (only), not because they lack the serious potential to rise again once the supply chain is dependable.

So, many investors who sell these shares now are going to be kicking themselves later for having done so. 

Meanwhile, those who (have done their due diligence and then) bought up these dumped future chart-toppers at record lows may be laughing to the bank.

Investing Cash Has a Best-By Date

The second reason to keep a long-term focus rather than freaking out is that it can keep you from mistakenly hoarding your investing money.

Everybody needs an emergency fund, maybe a couple of months’ worth of expenses, in a high-yield FDIC-insured savings account. This is never a bad idea. Do not get carried away, though. 

As tempting as it may be to pull all of your funds out of the market, there is another reason not to (besides selling off great stocks you might mourn later): Sidelined investing cash does not stay fresh forever. 

You might say that it has a best-by date stamped on it like a jug of milk. The reason why goes back to the i-word: Inflation always lowers money’s value over time. 

In fact, the root cause of inflation is usually too much currency in circulation within an economy. So, little by little, you need more and more dollars to buy something that cost only one dollar to purchase yesterday. 

It is almost ironic. People who keep their funds invested in a well-balanced, diversified portfolio should eventually see the value of their investment rising again. 

Meanwhile, unless the economy improves miraculously overnight, those who have pulled their money out for cash may see it worth less and less. 

There is actually a potential bright spot now for earnings: Inflation and high-interest rates almost always go together, sooner or later. 

Therefore, if your portfolio is balanced for high-interest rates, you could actually start seeing higher returns while those with fixed assets are losing value on the market. 

There are more reasons why keeping focused on your long-term financial goals is always best, no matter what the market is doing. Regardless, I am running out of time and space to discuss them here.  

Still on Your Side

There is a CERTIFIED FINANCIAL PLANNER™ PROFESSIONAL who cares enough to tell you the truth, not what you may want to hear. 

A firm paid by commission might encourage the panicked liquidation of a still-promising stock in favor of buying something inferior because they will profit from that sale.

TAKWEALTH does not operate this way. We would not want to be taken advantage of, so we will never do that to you.

Contact us today.

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More About the Author: Randy Takaki

Prior to founding TAKWEALTH, Randy Takaki graduated from the University of California, San Diego with a B.S. in Artificial Intelligence. He then spent over a decade as a senior advisor and AI contributor in the data-driven world of asset management. Randy’s main goal for TAKWEALTH clients is to build trust by creating a foundation that reliably and uniquely manages a client’s assets to meet their life goals. When Randy is not working hard for clients at TAKWEALTH, you can find him exploring the outdoors or planning his next computer science project.