Dear Valued Client,
“People who exit the stock market to avoid a decline are odds-on favorites to miss the next rally.”
– Peter Lynch, former manager of the Fidelity Magellan Fund
Aloni Goh Wealth Strategy Notes:
October is once again living up to its reputation for being volatile. This time, the main reason for the volatility is the U.S. 10-year treasury bond yield flirting with 5% as the U.S. government increases the supply of treasury bonds to finance the ballooning budget deficit at a time when the demand for U.S. treasuries from foreign central banks’ reserves have dried up; when the Federal Reserve is engaging in quantitative tightening, which adds even more to the supply of bonds; and when President Biden is calling for even more government spending to fan the flames of war, now on two fronts.
While all this sounds ominous, we believe that the day of reckoning for the U.S. debt bomb is not anytime in the near future. This is because interest rates have risen, which gives the Federal Reserve a lot of room to make an about-turn to push down interest rates if a crisis appears to be looming. On the Canadian front, equities are weak and underperforming due to the increasing perception that a recession is looming amidst the backdrop of record high household debt and inflation which is easing too slowly for the Bank of Canada to start cutting interest rates.
At this point, the seasonal tendency for the equity markets is to start to rally. The technical outlook for the next several months will be very dependent on how strong this rally will be, if it materializes. If equities show further weakness in November, then the bottom forming process is still not done. If there is a strong rally in equities, then it should set the stage for good gains next year. Whatever the short-term outcome may be, our view is that the long-term bull trend is still intact and that interest rates should start easing sometime next year. With the stock market being anticipatory in nature, it should start to rise once expectations set in that interest rates are indeed going to start trending lower. As we expect that this could happen anytime within the next six months, investors with a long-term horizon should not be overly concerned over current volatility and should stay focused on their long-term objectives.
Further Reading:
Hindsight is 20/20. There’s always that company we wished we had invested in, or maybe that company we wished we hadn’t invested in. We don’t always make the right decisions, especially in a vacuum. We miss the forest for the trees and our emotions get the better of us. To counter that habit, there’s a saying: “time in the markets beats timing the market.”
Numerous studies have shown that it is incredibly difficult to time the market, and those who do often miss out on spectacular stock market rallies. They sell too sign or buy too late. In a study conducted by Fidelity Investments, staying invested means you don’t miss out on the market’s best days and “gives you a better chance to reach your long-term goals.”
Even the world’s best investors and wealthiest individuals buy into this philosophy. Former MLB infielder Alex Rodriguez, who earned an estimated $455 million in 24 seasons split with the Mariners, Rangers and Yankees, said that the one piece of advice he’d give his younger self is to “put your money away early” and to “play the long game.” Being raised by a single mother and earning millions by his late teens was a huge culture shock to the son of Dominican immigrants.
Today, he owns a vast portfolio of real estate through his investment firm, despite starting with just a duplex that he purchased at 22 years old. However, Rodriguez admits he has to work harder today than he ever did playing baseball and wishes he had learned about investing earlier. “The ability to have compound interest over 20, 30, 40 years — you can be a very wealthy young person in a very short period of time.”
If you are interested in speaking with Aloni Goh Wealth Management regarding your current financial situation, or perhaps know someone who we may assist, we would be pleased to help. Referral of friends and family is the greatest compliment you could give us.
Please visit us at alonigohwealth.com or contact call us by phone 604-658-3056 or email raloni@leedejonesgable.com.
Best Regards,
Ron Aloni / Alan Goh / Jason Chen
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