How to stay positive amid market uncertainty
If history teaches us anything about investing, it's that markets never rise in a straight line. As much as all investors prefer quiet periods with stable returns, this is simply not how markets work.
Instead, expat investors planning for a happy retirement must navigate alternating periods of exuberance and gloom not only during the biggest bull and bear markets, such as the 2008 financial crisis and the decade-long expansion that followed, but also over shorter time frames such as last year.
History shows that focusing on broader patterns while anticipating short-term turbulence can increase the likelihood of achieving financial goals.
Shifts in investor sentiment occur because markets are forward-looking, trying to anticipate unknown outcomes and pricing that information today. That can lead to market swings that are often downward. Of course, many expat investors know this all too well after the past three years. What is unfortunate is that this has led some to become discouraged, which in the worst-case scenario could leave them ill-positioned for future opportunities.
However, there are signs that investor sentiment is now improving after a historic low last year. Until recently, the bad sentiment was partly caused by major problems, such as a historic inflationary environment not seen for more than 40 years, the possibility of a recession and the risk of central bank policy mistakes. Moreover, it was also triggered by major reversals in areas such as technology, crypto, and consumer goods, which frustrated many investors chasing short-term gains.
Financial Security in Retirement can benefit from Long Term Investments
How we then think about the stock market is often determined by what the market has done recently. For example, we see that investor sentiment is changing in a positive sense thanks to the improved market environment of recent months, in which, among other things, the S&P 500 has risen by 14% since October 2022.
There is also the valuation of the broad stock market. Investors are thus clearly more cautious than in 2021, when all asset classes were rising. This is positive for expats investing long term for their retirement as it allows them to invest at a discount compared to just a year ago.
In addition, recent data generally supports this improved sentiment as underlying economic trends move in the right direction. This includes better inflation figures, a still exceptionally strong labour market and a Fed and other central bank that may soon interrupt their rate hikes. However, uncertainty remains due to the possibility of flat growth this year and the direction of core inflation.
Clearly, investors can be wildly fickle. Learning to deal with uncertainty and staying invested even when the markets are uncomfortable is an important part of any investor's financial education. Perhaps counterintuitively, having the discipline to invest money when others are still scared can help lay the foundations for future financial success!
Investor sentiment is improving following the rally of recent months. Thus, long-term investors should stay focused and remember not to be daunted by short-term fluctuations.