Why The Stock Market Crash Will Get Worse
For most of my time as an investor, I was bullish. Aggressively buying and holding stocks made more sense as companies continued to grow their revenue and earnings. Unprofitable companies were narrowing their losses and getting close to profitability. We even saw some of these companies report several profitable quarters and achieve 10x stock price growth.
Now we find ourselves in the reverse scenario, with many assets plunging from their all-time highs. Some stocks have fallen well over 50% from their all-time highs, and it’s easy to think the worst is over. Investors will argue that buying stocks now presents a terrific long-term opportunity despite short-term volatility.
We got here due to a combination of factors. Stimulus strengthened the consumer and propped up stock valuations. Tech companies reported record earnings and revenue growth in 2021, proving the stock market’s resilience during the pandemic. Then came reality. The Fed pumped so much money into the market and created inflation.
By definition, inflation only occurs from increases in the money supply, and only the government has the authority to increase the money supply. Raising interest rates reduces the money supply and helps lower inflation…by crushing the consumer in the process.
Concerns with the Buy and Hold Strategy
The buy and hold strategy is pitched as a time tested way to increase your total returns. Investing money into the stock market now gives it multiple decades to compound over time. Furthermore, since the ‘average rate of return is 8%,’ assets should perform over time. If you look at the Google graph for the S&P 500’s ‘max’ history, you’ll see a charming chart that portrays continuous progress with some dips.
The graph does not include dividends, which would increase your returns even more. Some people also reinvested those dividends. Here’s the glaring issue with this graph: you only get to see historical data from 1982 onward. You…