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Experts suggest ‘The Lost Decade’ of investing has just begun, which means the stock market might not yield a positive return on your money for the next 10 years! So let’s look at the data to find out if this is even possible, and most importantly what you can do about it.
THE STAGFLATION THREAT
First we’ve got to discuss the looming threat of Stagflation, it’s the growing concern that the economy will spiral out of control, and potentially drag down your investments with it. So the first part, Stagnation is defined as a period of little to no growth in an economy, we’re talking less than 2% a year.
The second part, Inflation is simply a decrease in purchasing power, meaning you can buy less with your money. So stagflation is the worst of both worlds as the economy isn’t growing and inflation is running a mock.
ABSURD VALUATIONS
The last few years have been crazy as the FED was pumping 120 Billion Dollars of cash per month into the economy through it’s quantitative easing program. It also pledged to keep interest rates close to zero, allowing money to move freely to those people and businesses that needed it the most.
They were stuck in a pretty impossible situation, with a choice between artificially supporting the economy, or making people suffer a pandemic and a financial crisis all at once, through no fault of their own.
This led to 80% of all US dollars in existence being printed during the pandemic. That’s a gigantic increase in the money supply, and still shocks me to this day!
People were getting a lot of easy money, and this coupled with an increased excitement around stocks and crypto, gave birth to momentum investing. Now that the FED has stopped pumping so much cash into the economy and interest rates are rising, we are starting to see the consequences.
GEOPOLITICAL RISK
We need to address the rising geopolitical risks, as they are already having a huge impact on things like commodity prices, I mean oil is currently skyrocketing in price!
The world is so interconnected now, due to globalisation. This means that when something like the Russian Ukraine conflict happens miles away, it has a very real knock on effect on the economy.
Conflict puts global supply chains at even greater risk than the pandemic, and will have a much larger effect, than not being able to grab some toilet paper. That’s because goods like platinum, aluminium and steel which are essential parts used in cars, and computer chips! It’s like the start of a huge domino chain!
THE MASS INVESTOR EXODUS
I’m calling this panic the mass investor exodus, people are losing hope in the stock market and alt coins are struggling, which is leading to many people selling out of the markets completely.
Investors generally split their money between stocks and bonds, however if we see stagflation due to all of the factors we have discussed, then bonds actual returns will be negative because of the high inflation rate. And as for stocks, the slow economic growth means lower earnings and therefore, they will probably suffer as well.
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