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What the Fed’s Actions Should Mean to You

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It should mean nothing. Last week the Fed’s comments about inflation caused the stock market to drop. However, yesterday the market seems to have recovered somewhat.

I also think that a cause of the market reactions last week was that some Fed governors have indicated rate increases in late 2022 or 2023. I think that is nonsense. If they were able to calibrate the timing of these future actions, then they should likewise be able to try to do something now. However, the Fed guess is nothing more than a guess. The reactions are good for investment managers because they can justify their excess trading. However it plays out, I don’t think it matters much for the long-term investor.

Investing in attaining financial security as the goal is a long-term endeavor. The goal is for some point in the future and I suggest a minimum of ten years and upwards from there. Now, you need to be realistic and accept that the stock market will not go up every day and will have some periods of adjustment, meaning huge drops. The professionals call this a correction. Over long periods these should all balance out with the net effect increasing. If you do not believe that, then get out of the market. Also, if you expect the market to never drop, your expectations are not practical and you certainly do not understand basic economic cycles. Actually, when I listen to some of the commentators and people that are interviewed on the financial shows it seems like they do not have a clue about this either, but that’s a different story.

During prolonged economic cycles there will be many ups and downs due to good and spurious reasons and also overreactions to news whether real or fake. However, over the long term, I believe that a broad-based stock market portfolio should reflect the growth or, ugh, decline, of the United States and global economies. If you believe likewise, and also that there will be future growth, then do not pay attention to the periodic noise and explanations of self-anointed experts, and stick to your plan. If you don’t believe that, or if downturns make you nervous, then get out of the market.

This is pretty simple stuff. If you believe in long-term growth stick to your plan. If you do not, then get out of the market.

If you have any tax, business, financial, leadership or management issues you want to discuss please do not hesitate to contact me at emendlowitz@withum.com.

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