The stock market suffered its worst week since the June 23 bear market, when the Standard & Poor’s stock index fell more than -20% from its all-time high on January 3, 2022.
Try as you might not to pay attention when stocks nosedive and to stick with your strategy to stay invested in stocks for decades, when stocks plunge like they have in this past week, it can make you nervous, and make you rethink your portfolio strategy. Keep in mind:
Doomsday forecasters. In bear markets, doomsday forecasters step up their marketing, get more media attention, and may seem more believable. Some permanent doom and gloom forecasters, who have been wrong about “the coming crash” for many years, nonetheless attract attention with their frightening predictions of a meltdown. While past performance is no guarantee of your future results, the perma-bear doomsayers have been wrong year after year despite periodic corrections and bear market events.
Be Tax-Smart. Be on the lookout for ways you can reduce your taxes between now and the end of the year. With the stock market gyrations this year, realizing a loss on a taxable investment could be advantageous. A $1 long-term capital loss can reduce every dollar of capital gains realized in 2022 and reduce your taxable income by up to $3,000.
Look away. Like rubbernecking, the temptation to look at the daily news reports about the inflation, Federal Reserve policy, supply chain, and Ukraine crises is hard to resist. You can change the channel, turn the page, or not view a post about today’s financial economic news.
Apply a lens. If you need to view the latest news about the confluence of crises for the next few months for your job or to speak intelligently at cocktail parties, view the news skeptically and by applying a historical lens.
Educate yourself. Most crises that are tagged as unprecedented, like the pandemic and post-pandemic inflation, have occurred before. Events that occurred years before anyone living today can remember are much like the pandemic-inflation-Fed tightening cycle propelling today’s economy. History rhymes with today’s news. If you need to keep up with today’s financial economic news, consider learning about similar historical periods. Today’s pandemic, inflation cycle is a lot like the Spanish Influenza of 1918 and the high-inflation period that followed it.
The Standard & Poor’s 500 stock index closed Friday at 3,873.33. The index lost -0.72% from Thursday and -4.77% from last week. It was widely reportedly as the worst weekly loss since mid-June. The index is up +53.54% from the March 23, 2020, bear market low and down -18.7% from its January 3rd all-time high. Volatility is likely to continue in the weeks ahead as the Federal Reserve implements its policy aimed at ending the spate of inflation that’s occurred in the Covid-19 pandemic’s aftermath.
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