Uncover the Benefits of Staying Invested: 3 Reasons Why

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Hey everyone, I'm Phil Clark with OmniStar Financial Group. Welcome to We're Talking Money, another episode. And today we are talking about three reasons, three reasons to stay invested right now. A lot of people are thinking about going to cash. We hear it all the time. I'm going to talk you through why that may not be the best idea.

But I'm just going to go back to 2008 and bring us forward in terms of what really got us here. I want to be very clear: this isn't Putin's fault. You hear a lot of people on the news saying that Vladimir Putin is causing all of these problems. Inflation was kicking in in 2021, long before the Ukraine and Russia conflict occurred. So I realize, and please don't misunderstand me, some of that war is certainly causing some of the problems, but it's not nearly all of the problems. There's a lot of issues that were going on prior to that.

And so just recognize that stocks were trading at very high multiples. Markets were trading at very high multiples. We had a Federal Reserve that was pumping money into the system since 2009, 10, when we started quantitative easing. Just don't believe for a minute that all of this occurred because Ukraine and Russia got into a skirmish and ultimately a full-on war.

So where are we now? What's going on? Why are we talking about this? Well, we're probably in a recession. Looks that way. We don't have all the data at this point to confirm it, but two consecutive quarters of contracting GDP is your technical definition of recession. So for me, I think we're there. I think we're in that recession now. How severe will it be? Anybody's guess.

Here's what I can tell you. We still have this war in Ukraine and Russia to deal with. Still have extremely high prices at the gas pump, food prices, grocery aisle, just absolutely out of control right now. So all of that has driven markets down, and that's why your portfolio is feeling some pain at the moment. But let's talk about why it might not make sense to just go to cash.

So first, market volatility. It is normal. That's not an unusual thing. The fact that some of you over the last few years got into the stock market and it did nothing but go up, that is not normal. Certainly we get years where the market just goes up, but that's not normal.

Particularly think about this: we went through a global shutdown. We closed the economies literally around the globe. Every country was on board with that because of COVID-19. Did we overreact? Probably. That's another show. But we closed economies, yet the markets were going up, up, up and away. Why is that?

When you're in a recession like we were in 2020, the fastest recession that ever started, and I believe the fastest in terms of recovery, but how in the world do stock markets rally 125 when we're in the midst of a global crisis? Doesn't really make a lot of sense, does it? But that's where we were. So you've been used to watching that, and we've had tremendous returns, prodigious growth, that almost unprecedented. Market volatility is normal.

Let's talk that through for a minute. Let's go all the way back to 1985, and we had the collapse of the USSR. We had the Berlin Wall. We had the dot-com bubble around 2000. That lasted three years before the dot-com bubble was over, and so that took tech stocks down some 70-plus percent. Some went away, some were just destroyed, annihilated. In around 2009 we had the global financial crisis. That was just unprecedented in terms of what it did to the housing market, real estate. And then 2015 we had Brexit, and then 2021 we had a global pandemic known as COVID-19.

Some people call that the foreign flu, the China flu, the Asian flu, whatever you want to call it. It was just detrimental in every way to our economies around the world. Now, we got through that, and we're getting through it, but it doesn't mean we're going to get through it without some more pain.

Now, we're going to go back again. 1985 through 2022, we've gone through some serious conditions around the globe, and the markets have made it through. So despite market pullbacks, stocks have risen over the long term. That's what you have to remember. Stock investing, any investing, is really more about long-term, not short term.

Don't measure your portfolio today based on six months or a year, two years. Think about your goals and objectives. If you're in this for the long term, if your goals and objectives are 5, 10, 15, 20 years down the road, why would you go to cash now and try to time the market, getting out, getting in? Something that not many money managers have ever done with consistency, and we're talking about some of the most brilliant minds in the market. It's just not easy to do. So despite the pullbacks, markets have done well. That's point number one.

Point number two: the best returns, they tend to happen in the worst of times. What do I mean by that? Well, let's go through a chart. And so you'll see on the screen a chart that talks about missing the best days and how costly that can be. If you invested, according to Fidelity, ten thousand dollars on January 1st, 1980, and stayed invested in the S&P 500 index through March 31, 2021, that 10 000 turned into 1.09 million dollars.

Now, missing out on the best days can be costly. I'd say that's an understatement. Let's look at this. 38 percent loss of gain if you miss the best five days. So instead of having a million nine, you'd have 676, just missing the best five days over this forty plus year period. If you missed the best ten days, what did that cost? That cost fifty five percent of the upside. That means that you would have 487 thousand dollars. Wow.

Missing the best 30 days, it took away 84. So the portfolio started with 10 000 would have been worth 176 000. And if you miss the best 50 days, we're talking about less than two months here, and in terms of trading days a little more than that, but two calendar months, to give you some perspective on that, you would have lost 93 of the upside. So if you don't believe that missing the best days can be costly, just check out this chart. It says it all.

That's the S&P 500, and I'm not suggesting you invest in the S&P 500. I'm simply saying that had you done this in 1980, coming forward about 40 years or so, that would have been a million dollars left alone. But missing five through 50 days, we figure out, best trading days, that is, we figure out that you could have lost as much as 93 of the upside.

Now, going to cash, I understand that we get into these situations in the market. I've been in the wealth management world for 30 years, and I've seen a lot of volatility. I've been through a lot of volatility, and I know it's painful. I get it. My money's invested just like yours, so I get where you're coming from. But going to cash, we have found, doesn't benefit most people.

Point number three. Going to cash is one thing. Point number three, though, is the risky part of holding cash. What is that? Well, think about it. There's not a whole lot being paid on cash today. So if you go to cash, number one, your money is not going to generate much, if anything. And so I know you're saying, yeah, but at least it wouldn't be going down like the market has been doing. Granted, I'll give you that.

But here's the problem: inflation today is at 10 percent, maybe more. And in some parts of the economy, yes, it's more. We see some things that are 15, 20, 30 percent higher, some things less than that, but overall the inflation today is running hot at 10 and maybe more. Not as bad as 1980, when Jimmy Carter was in office, when it was at 15, and interest rates reached a peak of around 18. We surely don't want to go there. But to give you the context here, or rather to give you a good comparison, we're not too far off of that.

So inflation being what it is, if you go to cash, your money at best is going to earn maybe a couple of percent. If inflation is running at 10, here's the problem. You put a thousand, or excuse me, if you put a hundred dollars in your cash account, in one year it's worth a hundred and two dollars if you're getting two percent interest. The cost of buying things, though, is going up at 10 percent, so your 102 is not going to buy the same goods that it could buy today for a hundred and two dollars. Keep that in mind.

So if the market, or rather if your interest rate's only giving you two percent and inflation is going up at ten, you've got a six percent delta there, a gap that you can't close. So in other words, your purchasing power of the dollar is going down because of inflation. So the longer you sit in cash, the less purchasing power you have.

Now, you need some cash. Don't get me wrong, don't misunderstand what I'm saying. You need some cash, and yes, you're losing purchasing power, but staying invested with your long-term dollars makes more sense. You're getting dividends on that money if you're investing in dividend-paying stocks, and that's paying you significantly more in most cases than interest-bearing accounts. And that gives you, what we like to say is, it's paying you to wait for the markets to recover.

So three reasons. One, volatility is normal. Two, we said that missing the best days in the market can be very, very costly. The best returns tend to happen in the worst of times. So what can we take away from all of this? What's our better plan of action? Oh, and three, holding cash could be risky. So there's your three points.

What do we take away from this? Well, the key takeaways would be thinking about a better plan. What is that? First, build in some inflation protection in your portfolio. If you don't work with someone like us, or a wealth advisor that can handle these things for you, check what you are doing within that portfolio. Don't just set it and forget it, and then think you just rip everything out and go to cash.

Build the portfolio, build your investment portfolio the right way. So right now you need some inflation protection in there. Treasury inflation protected securities could be a good thing, TIPS, as they're called. Real estate, other things can give you some inflation protection. Understand what those are. Talk to your wealth advisor, talk to OmniStar, we're happy to help. But whatever you do, make sure you understand how to counter some of this inflation.

Number two, assess your tolerance for risk and know your capacity for risk. So important. Everybody knows what risk tolerance is; that's the gut check. Problem is, some of you that are new to investing, you've been in a straight up market until now. You might not know what your risk tolerance is. Need to understand that so that you make better decisions with your money. You don't want to get too aggressive just because the markets are going up, because they will come down. And when they do, you might be very aggressive because you didn't really understand your tolerance for risk.

Check that capacity for risk. Coming out of the market, going to cash when you really didn't need to, in other words, you had earnings or other resources that could get you through, that creates a problem as well. So know your capacity for risk. If you have capacity to stay invested, stay invested.

And then what is last on what this might look like in terms of key takeaways in a better plan? Dollar cost average. We've all heard it. If you participated in a 401k plan, you dollar cost average. Every pay period you have money taken out of your account, goes into your 401k account, and it buys those securities every pay period, whether the market's up or down. You don't stop it just because the market's down. In fact, that's the best time to buy. When stocks are down, you want to buy them. You buy more stocks with fewer dollars when the market's trading lower. When it recovers, you benefit from that.

So right now, if you have cash on hand, this could be a good opportunity to dollar cost average. Buy some more securities, find securities that match what you're trying to accomplish, or add to the securities that are in a well-diversified account or investment portfolio. Those types of moves can benefit you greatly in the long term. So dollar cost averaging, buy depressed stocks. While they're down, buy them. That's how you can recover even faster.

If you need a second opinion, want to get some ideas of how you can improve your strategy, if you're not one of our clients, we'd be honored to help. You can visit us at omnistarfinancial.com. Check out our Facebook page, check out our YouTube channel. I'd encourage you to subscribe to that. We do these shows routinely and are always trying to bring you good advice, things that you can use to make you better, at least financially. So check us out on social media. We appreciate you watching and making these shows possible. Thanks for tuning in. We'll see you next time on We're Talking Money.

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