Investing and the Fear of Missing Out
One way to keep track of the weeks is when we compose our newsletter. Guess so far, the pandemic is at the 6 month mark. We compose the SAS Client Newsletter on Wednesday so for our team it is another demarcation of time each week. It is important to keep a schedule and stay busy! We are lucky enough to be very busy with our financial planning and investment management business. As much as we can, maintaining as normal as possible a schedule, given the unique circumstances is important.
This week the Democrats are holding their national convention. Joe Biden has been nominated as the Democratic nominee for President. It is official. The US Postal Service has been attacked! We went to the Post Office and bought stamps and postcards. Our little contribution. The post office was empty.
Investors continue to withdraw more funds from equity mutual funds than they add. Bond mutual funds continue to add more funds even with the very low interest rates offered. Investors are nervous and have been nervous having lived through the dot.com bomb in 2001, the financial meltdown of 2008-09 and now the coronavirus bear market of just one month in 2020.
We have discussed the formidable impact of Federal Reserve policy on asset values. Those interventions continue except today the Fed minutes were released with the policy making body expressing significant concern about the coronavirus’s impact on the economy going forward. The minutes affirmed the commitment of the Fed to keep the Fed funds rate between 0-.25% until the economy recovers. The two sides of the low rate coin: favorable for borrowers, unfavorable for investors. The wild card is inflation. If inflation stays constrained while borrowing and investing rates are low, then we can avoid stagflation. Stagflation is no growth with increasing inflation. For those of you old enough, think Jimmy Carter for reference to the last time this occurred.
In the meantime, all the major averages except the Dow Jones Industrial Average have reached new record values since the coronavirus meltdown. Wow.
One continued reason for stock market gains is FOMO. Fear Of Missing Out. This is an old wall street acronym as well as an identifiable behavioral economic rule. Even professional investors are subject to the herd instinct. We try to mitigate this phenomena and so far so good since we steered clear and did not sell at the March low.