Your Financial Future: Market corrections take time
This week, we are going to discuss several different financial situations that I have encountered recently.
Someone at a recent home show asked me if it was true that the stock market was going to correct next month, and then going to bounce back in July. That was a news flash that I had not received. Normally, when the stock market does correct, the recovery is over a few years, not a few months. Stock investments need to be long term and no one can constantly time the market.
I am afraid when the market does correct 鈥� and it will someday 鈥� many investors will believe this quick recovery will happen. When the pandemic was first starting in March 2020, this did happen. At that time, many people thought we would need to close down the economy for two or three weeks, and the pandemic would be over.
The government provided a huge stimulus package, which was probably needed with all of the uncertainty at the time. As the pandemic spun out of control, many of those who did not need the stimulus money invested it into the stock market and home improvements.
The roots of our current crisis with inflation can be traced back to providing additional rounds of stimulus to people who did not need it.
Just 22 years ago, the U.S. economy suffered the lost decade. From Jan. 1, 2000 it took 12 years for the S&P 500 to break even, if you did not take any money out. This would be impossible if you were retired and your investment was your 401(k).
At the home show, I also met someone who recently retired and was facing credit card debt. Credit cards have the highest interest rate of almost any debt. It can easily be 12%-18% and if you miss a payment, you could get a penalty rate of 20% or higher. If you only pay the minimum payment, it could take years to pay off your balance. You should only incur credit card debt that you can pay off in full every month.
If you are currently carrying this expensive debt, you need to create a plan to eliminate it. Pay at least the minimum on every account, but pay as much extra as possible on the account with the highest interest rate. I have seen some people who are carry credit card debt, and own money markets. You do need to have some emergency money available in the bank, but consider applying some of the extra to credit card debt instead of just getting almost no interest from the bank.
I recently saw a well-known consumer advocate speaking on television about gasoline price hikes. He seemed to blame price hikes on supply and demand and said the oil companies were not making a lot more money.
I disagree with him.
Only about 2% of our fuel comes from Russia and we have the capacity to produce more. The cost to produce a gallon of American oil is not higher in the U.S. than before the war in Ukraine. Cost of production always includes both fixed and variable costs. Our cost did not raise significantly because of the war. Maybe the opportunity to sell more overseas due to shortages gave the oil companies an opportunity to sell for more money there, but that is a choice they are making.
Prices of gasoline in our area can vary by 50 cents within six or seven miles of each other. Look for the best values or use one of the phone apps to find savings.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.