By Eric Reich
One of my often-repeated phrases to clients is “if it feels good, it probably isn’t good for you”. The ultimate “feel good” for clients is having money sitting in a savings account. When it comes up in a meeting, they are always quick to say, “I know I shouldn’t have this much cash doing nothing for me but…”. The reality is they do it because it feels good. They like to see a large balance when they check it, and a common reason for having it during a volatile time is that “at least I’m not losing any money”. The truth is in 2022 you actually were losing money. Inflation was running over 9% at the time so your purchasing power was being eroded quickly. But not seeing losses on a statement made them feel good and it certainly seemed better than watching the markets and their 401(k) drop steadily. Add in the fact that suddenly savings accounts were actually paying decent interest for a short while, and it made the feel good of cash seem even better.
Like anything else in life, things that feel good don’t usually last too long. Inflation is falling rapidly and that has lifted markets dramatically so far in 2023. Investors, however, have been reluctant to get back into the markets because they are still feeling the sting of 2022. So now, what doesn’t feel good probably is good for you (think dieting or exercise). The discomfort of being back in a volatile market has rewarded investors so far. While I expect continued volatility for a few more months, I expect that markets overall will continue to rise over the next 12 months.
So that brings us to the age-old question, is now a good time to invest in the market? For the record 99% of the time the answer is yes. Market timing consistently is impossible so don’t think you’re going to be the first investor to figure it out. Right now, we have what is known as an inverted yield curve. This means short term bonds are yielding more than long term bonds. This is what has helped boost savings account interest lately. The problem is while we know it feels good to leave it there, inverted yield curves do not last, and when they revert back to normal, they typically do it very quickly. This means that it will be very easy to miss a rise in the stock market as well as medium term bonds (7-10 years). This could result in what feels good today (sitting in cash) becoming bad for you in the long run.
While I do expect a recession around year end, I believe it will be a short and shallow recession. I see the risk of a recession as much lower than the risk of missing out on the normalization of the yield curve and potential rise in the stock market that could follow.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
