Fear, FUD, and Financial Freedom in 2022

When it’s storming outside and trees are bending in the wind, suddenly everybody wants to buy hurricane insurance. Of course, by that point it’s often too late as the insurance is prohibitively expensive, if you can even get it.

The financial markets really aren’t any different. Many retail investors only think about getting prepared for worst-case scenarios when they’re already in the eye of the storm. Now, people are running for cover and seeking shelter, but it seems like there’s no place to hide anymore.

It’s been particularly tough on unprepared Generation Z traders, whose experience has been that stocks and ETF’s only go up. Even COVID-19 couldn’t keep equities down for more than a couple of months, and the post-crash rebound was among the most swift and powerful in stock market history.

But then, the pace of that “recovery” was artificially expedited by unprecedented injections of liquidity into the banking system along with massive stimulus programs. The other shoe was bound to drop at some point, and here we are with two consecutive inflation prints of 8% or higher.

Young traders might not know what stagflation looks and feels like, but older investors do and they’re starting to feel a distinct sense of déjà vu in 2022. And, they’re pulling their money out of the markets fast: after sixth straight weeks of losses, a record $7 trillion in value has been erased from of the stock market (compared to $4.6 trillion during the dot-com crash and $4.4 trillion during the COVID-19 crisis).

Welcome to the other side of investing, folks – the hard part, where stock prices don’t only go north. Popular cryptocurrencies like Bitcoin and Ethereum, which have been closely tied to technology stocks lately, haven’t fared any better.

Not long ago, Bitcoin fell briefly below $30,000 for the first time in 10 months. All told, cryptocurrencies overall lost nearly $800 billion in market value in just one month.

If asset prices are merely a reflection of the economy – or at least, the reality of the working class and small businesses – then it’s evident that the “recovery” and “transitory inflation” narrative is long past its expiration date. Supply-chain bottlenecks, sky-high production input costs, and a shortage of workers has put enormous financial pressure on mom-and-pop businesses as well as on the struggling, shrinking middle class in America.

U.S. GDP shrank 1.4% in the first three months of 2022, a stunning disappointment compared to the expectation of 1.1% GDP growth, and following 6.9% growth in 2021’s fourth quarter. If this quarter also shows a contracting GDP, we’ll officially be in a recession and stagflation will be a stark, undeniable reality.

Adding fuel to the recessionary fire is the bursting of the real estate bubble. As home prices roll over and foreclosures are on the rise, the average American’s net worth is falling fast because many people have most of their wealth stored in the value of their home.

Amid this backdrop of fear and uncertainty, it’s tempting to sell one’s investable assets and just hide out in cash – though this isn’t really much of a hiding place, either, as high inflation will quickly deteriorate the value of your fiat money.

One recent survey found that 43% of people said they’re too nervous to invest in the market right now. This sentiment is understandable, but history shows that being mentally tough – not cutting and running – is the best approach when the markets are falling.

You have to ask yourself: What exactly is the worst-case scenario? Historically, the stock market has always recovered from sell-offs. Time heals all wounds, and every crisis, so far, has been temporary (though sometimes it took a while for the fear-selling to subside).

Going back to 1929, the average stock bear market involved a 33.5% decline. That, however, is what investors experienced if they bought at the absolute peak – which, hopefully, you didn’t do.

If you’ve been following the principles of waiting for dips and then scaling into positions gradually, you won’t likely have to suffer a life-changing drawdown in your portfolio’s value. And again, a “This, too, shall pass” mind-set will allow the passage of time to work in your favor.

Bitcoin has less history and assurance than the stock market, of course, but it has also recovered from all of its past crashes. There are certainly no guarantees, but the current crypto crisis won’t likely keep Bitcoin below $30,000 permanently.

When all is said and done, FUD will shake amateurs out of the financial markets while the professionals will stay calm and buy more of their favorite assets. After all, it’s not too late to improve your returns though an attitude shift, and to put your “buy low, sell high” principles into practice.