3. Distinguish Between Patience and Complacency. Patience is a virtue for investors, as stocks should continue to be viable long-term investments. Complacency, however, can be a trap for investors. There are changes in the investment environment that are likely to last beyond this year’s bear market and may necessitate course adjustments for long-term investors. For example, inflation may be a more persistent challenge than deflation over the next decade. Consequently, investors should consider adding investments that provide inflation protection and inflation-adjusted income. This can be a way to make sure your current and long-term lifestyle are on track.
The war in Ukraine and rivalry between the U.S. and China will also create long-term investment changes, with winners and losers likely to emerge because of potential fundamental changes in the investment environment.
4. Avoid Relying Solely on the Recent Past as a Guide to the Future. Too many investors assume that bonds provide a reliable counterweight to stocks, as for most of the past two decades, bond prices have tended to rise when stock prices fall.
However, “recency bias” in assuming that negative correlations between stocks and bonds will persist can be a trap for investors. For much of history, in fact, the correlation was positive, with stocks and bond prices advancing or declining together. This is where conversations with an advisor like me or members of our team can help you better navigate these concerns. They’re not complicated and properly managed can give you a leg up with your investments.