The S&P 500 is down over 18% year-to-date and we touched bear market territory on Friday. The stock market is going through a turbulent time right now, inflation at all-time highs, labor and supply chain shortages, you name it, it’s all happening.
Therefore, as I sip my coffee this morning, many people have been asking – what should they do? Should they keep investing? Should they sell? Talk about a time for opportunity.
S&P 500 Current State
The stock market is down 18.66% and is now below 4,000 points in the S&P 500. The last time the S&P 500 was below 4,000 was back in March of 2021. This is approximately 14 months ago. What has happened since then?
1.) Inflation Rate: The rate of inflation started the climb in April of 2021, when the report showed 4.2%. The rate of inflation has been on a steady climb upward since then, going to 5.4% in September and 7% before the year of 2021 was over. Inflation has not slowed, as inflation is over 8%, reporting 8.5% and 8.3% in our last two months. See the chart below.
2.) Russia & Ukraine: Russia has been wreaking havoc on Ukraine beginning a few months ago. Speaking of inflation, this war is not helping. Russia is a large producer of oil and gas, as well as a large exporter of wheat. All is frequently used in almost everything we do or eat. Therefore, this war has reduced supply, increasing prices across the board. In Ohio, the price per gallon I just paid was $4.50, an all-time high for me. In addition, all food prices are up, period. This has caused a ripple effect into the stock market, as many companies input costs are now rising. This is putting pressure on profit margins. Look at Target stock, as that should give you a great indication of what rising costs can do.
4.) Stimulus: The US Government sent out over $3.5-4.0 trillion to households for the pandemic. Then, on top of that, stimulus in the trillions also went out to small business and municipalities. This occurred during 2020 and 2021 from COVID. That COVID relief also created inflation, as well, as deposit accounts hit record highs as individuals had too much cash and nothing to spend on. Therefore, due to more money in the economy, this has sent prices soaring across the board. The fed is doing what they can in their taper efforts, plus rising interest rates, but the damage has been done. Therefore, something can be said that due to the stimulus, this has also had a hand in rising prices, lower labor force and creating this bubble. Hence, rising costs for business, equating to lower margins (again) and a decline in the stock market.
Now what? 3 Things you can do
1.) Buy Assets! As the stock market drops, continue to average down. I am a huge believer that you cannot time or predict the stock market or what’s to come. Therefore, at lower prices, buy more. Buy quality.
What you can even do – is set up an automatic daily investment strategy to buy Vanguard’s S&P 500 ETF (VOO) like I have done. This allows me to average down and continue to buy more assets/shares at lower prices. This also adds to my forward passive income total, i.e. dividends from VOO.
You can also head to our YouTube channel to see all of the dividend stock analyses we are doing! You are now able to buy high quality businesses at FAR lower prices.
2.) Emergency Fund: Make sure you have your emergency fund in place. I prefer that you also earn as much interest as possible on that emergency fund. I highly recommend using SoFi’s banking application, as you can earn 1.25% (as of May 2022) on both your savings AND checking account.
3.) Invest in Real Estate – Crowdfunding: I am as passive as it gets when it comes to real estate investing. That’s why I have picked Fundrise for my favorite crowdfunding real estate investment platform.
I went over my latest Q1-2022 update on my real estate investing with Fundrise a few weeks ago. My investment has surpassed over $13,000 and my wife & I currently invest $200 per month with Fundrise. The returns, as you’ll see here, have been nothing but positive and consistent. What more can you ask for when the S&P 500 is down over 18% this year?
Conclusion & Summary
Overall, remain calm and stay the course! I know it’s hard to steer away from negative news regarding the bear market, the upcoming recession, rising interest rates, etc.. Sticking to your strategy is your best bet. The 3 actions I am doing:
1.) Buying investments on a daily basis! Where do I automate my VOO S&P 500 purchase? I use SoFi – link here. Free and you can set up automated trades. Earn free stock for signing up, too! In addition, as you’ve seen o
2.) As stated above, any idle savings that I want access to – I make sure I have it in an online, high interest bearing account, such as SoFi, again. What a great platform!
3.) Real Estate Crowdfunding Investing. We are continuing our investment with Fundrise. First, it is non-equity market related. Second, provides more diversification. Third, adds ANOTHER form of passive income, as we are set to earn over $750 in income this year from our investment.
What investment or other strategies do you find works during a volatile time period? What have you learned from the previous economic downturns? Please share your comments and feedback below. Thank you! Good luck and happy investing, as always!
-Lanny