Cents & Sensibility —
Investors and gamblers

Beth Peabody

Recent events prompted last month’s content, which recommended action items due to April’s tax deadline and news of soaring inflation and the move to higher interest rates. In addition, readers were urged not to let financial market volatility during the first few months of 2022 overshadow the outsized returns generated over the past many years.

Unfortunately, April provided another bout of poor performance for most financial markets and for the first time in recent memory, safer investments also produced negative returns.

With the onset of the Kentucky Derby season, and the myriad of opportunities it provides to gamble, this month’s column reminds readers that it takes years to achieve financial security by being an investor and not a gambler.

Falling stock and bond prices can be unsettling, but investors study history and understand that volatility in financial markets is inherent in the short term in order to achieve higher returns over time.

Gamblers on the other hand are those who possess very little knowledge of securities they are buying or selling and may be overly disappointed with the recent declines in prices of cryptocurrencies, SPACs, NFTs and meme stocks that were so popular during the previous year. Making such investments without proper due diligence is no different than picking a horse to win the Derby based upon its post position, the color of the silks or its name.

Meanwhile, an investor attempts to understand why stock and bond markets have been so volatile this year. As a summary, recent declines in most asset classes were caused by the following three factors:

  • In January, the Omicron variant spread worldwide, which reignited fears that infections would hinder global economic growth.
  • A major land war began in Europe and the impact on oil prices moving higher quickly was felt by all consumers and further stoked inflation.
  • To battle the soaring inflation, central banks around the world announced changes in their policies that pushed interest rates higher.

The confluence of these events is highly unusual. An investor realizes that no one knows for sure when the impact of these events will dissipate, and that a long-term investment strategy will reward them over time.

The recent performance of financial markets is a good opportunity to reassess your risk tolerance as recommended in many columns. Review your asset allocation and, if nothing in your life has changed dramatically, do not let recent events change your long-term investment strategy.

Action items for May: Become an investor to achieve financial security and avoid being a gambler. Save “hunches” and “sure bets” for time spent at the track and use dollar amounts that you can afford to lose.

If you have been gambling and suffered losses recently, consider selling investments that have decreased in value, use the losses to offset any capital gains you may have and reinvest the proceeds into investments that will perform more consistently over time.

Your financial success is dependent on being an investor, not a gambler.

Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a 1979 graduate of Sacred Heart Academy.

Previous Cents & Sensibility columns may be viewed at https://therecordnewspaper.org/editorials-commentary/cents-sensibility/

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