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Fear Is A Helluva Drug

Posted on 

March 7, 2024


If you pay any attention to financial punditry, you will always be able to find someone making bold predictions about the US being on the brink of a recession, depression, or worse: societal collapse.

This makes sense as fearmongering is a monetizable strategy for media outlets, investment/insurance advisors, politicians, and many others.

The problem is, even for those of us trying to abstain from the negativity, it can be nearly impossible to ignore.

When zoomed in on the minutiae of a moment, we risk the doomsaying (or hype, on the other end of the spectrum) influencing our beliefs and actions.

Scary Statistics:

In recent history, the following statistics rattled many investors:

  • April 2020: the highest unemployment rate (14.8%) since data collection began in 1948.
  • June 2022: the highest inflation (9.1%) in 41 years.
  • October 2023: the highest average interest rate on a 30yr fixed rate mortgage (7.9%) since November 2000.

Any one of these three events on their own could instill fear.

But all three?! In just over three-years!?

Surely the sky must have fallen!

Flash forward:

  • January 2024: the US unemployment rate is 3.7% (vs. the long-term average of 5.7%).
  • January 2024: the US inflation rate is 3.1% (vs. the long-term average of 3.28%).
  • March 2024: the average interest rate on a 30yr fixed rate mortgage is 7.15%.

All of this while, just this month, the S&P 500, NASDAQ, and Bitcoin all reached record highs.

And no, the point is not to look at life (and in this case, the economy + financial markets) through rose-colored glasses.

The point, broadly speaking, is about accepting the things beyond your control and understanding that reacting (often out of fear) is more detrimental than staying the course.

Timing the Market:

Fleeing from market volatility to the “safety” of a high-yield savings account feels good in the moment. It feels even better if you happen to be one of the extremely lucky ones that time it before a market correction.

Problem is, when do you reinvest the funds?

How do you time getting back in?

Do you reinvest all at once?

And how much upside did you miss while sitting on the sidelines?

Anticipation = Fear Inoculation:

Anticipating fearful situations can lessen the intensity of fear responses.

This makes intuitive sense.

For instance, if you’re aware that someone is hiding behind the curtain and is going to jump out at you, expecting it can diminish the shock and fear you might feel otherwise.

Therefore, anticipating less-than-ideal events can actually serve as a means to reduce the impact of fear.

Unanswerable Questions That Stoke Fear: 

To preempt the fearmongering that we’ll be hearing about over the coming weeks and months, we’ve highlighted some big unanswerable questions to help you anticipate what’s ahead.

These questions, which nobody can answer with any degree of certainty, all have consequences for your portfolios:

  • When will the Federal Reserve cut rates?
  • How will the economic slowdown in China impact global growth?
  • Will rising federal debt have consequences? If so, when and how might they manifest?
  • Will housing prices continue to climb due to the demand-supply imbalance?
  • Will the rise of AI and robotics send unemployment rates skyrocketing?
  • Will the rise of remote work lead to more offshoring for cheaper labor of highly educated professionals?
  • Will geopolitical risks impact the economy and financial markets? Such as tensions between the US and China? Or Israel and other Middle East power players such as Iran? Or Russia and Ukraine?
  • How severe will climate risks impact the economy and financial markets? Such as extreme weather events, rising sea-levels, changing precipitation patterns, human displacement, food/water shortages, loss of biodiversity, and increased temperatures.
  • How will the upcoming presidential election influence the economy and financial markets?
  • What are the odds of another global pandemic in our lifetime?
  • How might the increasing burdens of student loans, credit card debt, and other consumer debt affect the US economy?
  • How might a cyberattack derail public safety, national security, and financial markets?
  • When, and how intense, will the next market correction be (10%, 20%, 30%, more)?

Lastly, and because this one actually comes up in client conversations:

  • Is the United States heading towards a post-apocalyptic state where my family’s only chance at survival will be moving to a bunker?

Ah, all heartwarming questions.

Have Hope: 

While there may be a tendency to retreat to cash (or your bunker), also consider the many bright areas that will offer humanity the opportunity to thrive (not just survive) over the next 100 years:

  • Precision agriculture
  • Vertical farming / controlled environment agriculture
  • Desalination technologies
  • Smart water management systems
  • Gene editing
  • Personalized medicine
  • Vaccine development
  • Carbon capture & storage
  • Quantum computing
  • Ethical AI & machine learning
  • Space-based solar power
  • Asteroid mining

Final Thoughts:

In the face of the challenges ahead of us, it is the indomitable human spirit to innovate and persevere that lights our path forward.

Stay hopeful.

Stay proactive.

Stay invested.