On January 26, 2022, officials at the Federal Reserve signaled that they could “soon” raise interest rates for the first time in three years, as inflation concerns cast a shadow over the pandemic-battered economy. Many believe this will cause the stock market to pullback, erasing many of the gains seen over the last several years.
Yes, we want the stock market to keep going up, but how long will it continue at this pace? 2022 has gotten off to a rocky start, with the market seeing wild fluctuations daily.
To keep things in perspective, here is a chart of the stock market over the last 100 years:
As we can see, the Dow does NOT go straight up. It went down from time to time. If history is correct, the stock market is due a correction. Thanks to the trillion-dollar deficits and other factors, many think we are due a BIG correction that could last YEARS.
Other factors to monitor closely that can influence the stock market include the following:
- Supply chain issues
- Conflict with Russia and China
Of course, this is all speculation, but one thing many experts can agree on is if we look at history, the stock market is due a pullback. Markets go up, they go down. No one knows when this will happen, how big it will be, and how long it will last, but it’s coming.
We also have bitcoin, has pulled back from its record highs. Will bitcoin continue to fall, or will it rebound? Time will tell.
What’s Your Investment Strategy?
When investing in the stock market, the main focus is capital gains. Capitals gains are defined as “a profit from the sale of property or an investment.” The average person in the stock market and buying bitcoin are focused on making profits.
While there’s nothing wrong with buying low and getting a good profit. that just one way to invest. But ask yourself the following question:
If the stock market crashes tomorrow, what will you have to show for it?
This is the problem many people are facing. They are focused on getting a good profit, but no one knows when the markets will fall. In actuality, there are many investors who do not think the markets will fall.
But again, if by chance what will people have to show for themselves if these markets drop? Screenshots of how much their portfolio was worth?
THIS is the big problem. Too many investors have all their money in the stock market or bitcoin. They are over-leveraged and totally exposed. This is especially true with IRA and 401k accounts. You must keep your money inside that retirement account until age 59-1/2 or face early withdrawal penalties.
This basically means you are totally at the mercy of the stock market for YEARS.
Assets and Cash Flow
When people invest in the stock market, they are totally reliant on profits that may or may not happen. One of the best things an investor can do is incorporate cash flow into their portfolios. This decreases your reliance on capital gains and waiting on profits.
Another problem with capital gains? A person my not take those gains when they are available. instead, they leave their money in the stock market, expecting it to go higher. When I was a financial advisor, we had to say this constantly:
“Past performances do not indicate future results.”
Before the stock market crashes, it’s critical a person take some of those PAPER profits and exchange them for REAL assets. This cartoon says it all:
China buys U.S. bonds, and with the bond interest what do they do? Buy GOLD.
It’s not just China buying gold. Central banks all over the world are purchasing the precious metal.
What are YOU buying with your money? Unfortunately, the average person doesn’t buy gold with their money. Instead, they buy items that LOSE value, such as video games, cars, cell phones, clothes, shoes, and many other items.
Instead of spending all your money on these items, we must start buying real assets while we have the money to do so.
There are many different scenarios and events in place that could have an impact on the stock market and value of the dollar. While you have time, its critical that you buy TANGIBLE assets. This way, if the stock market crashes, you still have something that not only retains its value, but can generate revenue for you as well. Examples of tangible assets include the following:
- Precious metals (gold and silver)
- Rental property
- Vending machines
In other words, if the stock market crashes, you’ll be Ok, because you still have your rental property generating revenue, or you have gold and silver that hasn’t dropped in value like the stocks in your 401k.
It’s critical we stay abreast on what’s going on around us. It’s also important we learn about different investment strategies. The stock market and bitcoin are not the only investment strategies available. Get more tips in our book Invest for Success: Millionaire Wealth Strategies Not Taught in School. Children can benefit as well with our book Planting Seeds: The Children’s Guide to Entrepreneurship. Both available on Amazon.
In addition, join us on Udemy for our virtual classes on passive income strategies: