How to invest among rising economic uncertainty
It starts with picking the right path
Investing is hard.
It takes time to figure out how to navigate the stock market, and, honestly, most people don’t even bother doing it. I think it has something to do with the learning curve being steeper than Robinhood’s year-to-date chart, but that’s just me.
You can read all my blog posts and a thousand books on the subject — each claiming to outline exactly how to make meaningful amounts of money — and still struggle to connect the dots when you’re actually throwing around your own hard-earned dollars.
It’s humbling, too.
Just when you think you’ve figured it all out, the market plunges 20% — a fact you know all too well if you’ve managed to hang on to your holdings over the course of the last month or so.
Here’s the thing, though: it’s worth it. It’s worth taking the time to educate yourself on the basics of investing. The rallies, over decades, more than make up for the down days, and, well, anything that’s worth anything is usually at least a little difficult.
Investing is no exception.
The stock market is one of the greatest wealth-building tools the world has ever seen. You throw some capital at a company with great long-term growth and, over time, that capital grows in value.
At least that’s the plan.
But, things don’t always go according to plan
It all makes sense when the market is going up. You invest a few hundred bucks here, another several hundo there, and watch it do its thing. You buy more when the market dips a bit, but the dips are more like blips in an otherwise meadow of green ticker symbols.
It’s worked like a charm for the last decade-plus.
Now, though, and stop me if you’ve heard this before: Things are different.
The free money poured into the system during the height of the pandemic is all but gone now. Stay-at-home darlings with ludicrous multiples and zero revenue jumped almost daily for a while. Not anymore. Now, they’re going in the opposite direction.
The stock market is a vehicle for creating wealth and, in that sense, it was working perfectly.
Things were far from perfect, though.
Fast forward to today and you know just how imperfect things actually were just beneath the surface. The pandemic plays still aren’t actually making any money and, instead of being buoyed by inflated share prices, some are at risk of sinking into bankruptcy. That’s what losing 80–90% of your market cap will do to you.
Now is not the time to own those companies.
Let them start to grow into reasonable valuations, not artificially-inflated ones, and maybe take a nibble once you’re sure they’ll actually be in business in five years.
Tread carefully
If you want to invest in this market — and there isn’t a rule stating you have to — but if you do, do it carefully.
I’d classify carefully as buying a few shares of an index fund like SPY or a blue-chip company like Microsoft. Maybe grab a discount retailer like Costco while you’re at it, but don’t get too fancy … or too ahead of yourself. Pick one and move on. Look for a business model you trust will endure a potential recession. Microsoft has cloud and software, both high-margin businesses that aren’t going anywhere, and Costco has a sticky subscription model at its disposal.
Again, If you want to invest during times like these, times of economic uncertainty, start with quality … and start small.
I’m holding a handful (5) of stocks instead of taking the index fund route, but I don’t think you can go wrong either way if you’re investing for the long term. Whatever you invest now will almost certainly be worth more a decade from now as long as you stick to the good stuff (SPY, MSFT, COST, etc.).
Over time, capitalism creates capital. Investing is all about finding the companies that can do it over the long haul, in an array of economic conditions.
Don’t YOLO your life savings into the stock market
Now looks like a great time to find some stellar companies on sale, but that doesn’t mean there won’t be further discounts. There’s simply too much uncertainty in the world right now (and the market hates uncertainty).
Maybe take a nibble with the intention to take a bigger bite if the market sinks another leg lower. Maybe sit on the sidelines. What’s the rush?
With the market as treacherous as ever, this isn’t the time to get fancy.
Pick a path (blue chips/dividend payers or index fund) and stick to it.
Don’t invest all the money you have.
Don’t sweat the volatility.
Final Thoughts
It’s looking like things are going to bob up and down for a bit. That’s fine. Feel free to take advantage of some steep discounts, but remember, there is such a thing as too much of a good thing. That share of Microsoft you scooped up at $260 looks great compared to the ones you bought above $300, but there’s no guarantee you won’t be able to buy shares below $200 later in the year. It’s unlikely, sure, but anything is possible these days.
Disclaimer: I’m a market participant, not an analyst. This is not financial advice.
