Five charts from the past week that tell a story about the markets and investing…
Should You Buy or Sell Stocks?
Historical comparison can’t tell us exactly what will happen, but they can help put things in perspective. I do find some comfort knowing that buying stocks when they’re down big like this have historically led to positive outcomes.
Here’s the performance of U.S. stocks after declining 25% or more:
Worst Year for Bonds
The U.S. bond market is on pace for its worst year in history with a loss of 14.3%. However, with yields on most fixed income assets moving sharply higher this year, now could be a good time to revisit fixed income in portfolios.
Housing has become more expensive as interest rates continue to rise.
Two years ago, the rate was 2.88% and the average new home price was $405k.
Today the rate is 6.70% and the average new home price is $522k.
Result is a $23k increase in down payment (assuming 20% down) and 100% increase in monthly payment (from $1,345 to $2,694).
Price Changes vs Inflation
This is one of my favorite charts on inflation because it shows that inflation is not a uniform increase in prices but varies greatly from sector to sector. The two big outliers to the upside are health care and college expenses.
One of the main reasons you invest is to outpace these price changes. During this period, stocks did their job, with a total return of over 300%.
It’s easy to own assets when they are going up. But investing when the future seems grim takes courage. You’re never going to time the bottom and will probably regret buying in the short term. But if you can stomach the volatility, you’re usually rewarded long term.
Here’s the long-term growth of stocks, bonds, real estate, and cash:
Sources and Disclaimers:
U.S. stock performance after decline 25% or more. Data source YCharts. Chart created by George Maroudas.
U.S. Bonds total return data from YCharts. Chart from George Maroudas.
Housing Affordability: Referring to 30-year mortgage rates and housing in the United States. This cost comparison does not include property taxes, insurance, utilities, and repairs/maintenance which have all seen significant increases as well.
30-Year Mortgage Chart from YCharts.
Used Bankrate’s Mortgage Calculator
Price changes chart from AEI.org
Growth of $100 Chart from George Maroudas. Data source Stern.Nye.edu.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.