Investing During The Downtimes

It is sometimes difficult to go against the grain. When markets go down for an unknown period of time, it is natural to want to hunker down and withdraw.

Over the past several years, many said the markets were overvalued, especially in the U.S. Robert Lovelace, Vice Chair and President of Capital Group (American Funds) wrote: “I see a moderate recession as necessary to clean out the excess of the past decade. You can’t have such a sustained period of growth without an occasional downturn to balance things out. It’s normal. It’s expected. It’s healthy.”

We have discussed in previous blogs, newsletters and podcasts about high valuations in the marketplace. Frequently, the statement has been made that when you do the math, the higher valuations were warranted with such low interest rates.

That is no longer the case. Perhaps the bear market now is what Lovelace refers to as cleaning out the excesses. On the bond front, it looks like interest rates will be higher than before but no one is predicting the double-digit rates of the 70s. We should also remember that the Fed kept rates artificially low for years. Many feel they waited too long to start raising interest rates but then hindsight often provides clearer insight.

Savers will enjoy higher interest rates being paid. Bonds will start paying more interest. Some inflation allows for higher wages.

From a portfolio standpoint, the key is time horizon. We’ve mentioned before the importance of letting us know if you need withdrawals so we can align your portfolio accordingly.

We use deposits, interest and dividends by buying securities that are currently undervalued. This is part of rebalancing. When the market is down, it allows us to buy more shares for when their values rise. It is also a form of dollar cost averaging.