Today’s Hack
Over the next two podcasts, we’re going to discuss a lot of different financial jargon, some terms you may hear within the financial industry, and how it relates to your financial journey with your advisor.
Bear versus Bull
We can’t really know what kind of market we are in until a few months down the road. A bear market is a general decline, usually around 20% over a 2-quarter period. Even with the pandemic market drop, it’s debated whether it lasted long enough to be considered a bear market. Bull markets on the flip side last around 8 to 10 years. We’re technically still in the longest-running bull market ever.
Inflation
Generally, inflation is a progressive increase in prices over time. But why does inflation happen? Usually, it comes down to supply and demand. There’s an increase in the supply of money, which we saw with the pandemic. Now that excess of funds is out there with too little products available for purchase.
Recessions
A recession can be one of those confusing financial events where people don’t really know when we are in one. The fed is trying to play a balancing act between rising interest rates and preventing a recession. They are trying to curb the high spending we saw with low interest rates during the pandemic. The economy goes through cycles and that’s nothing new.
Volatility
With inflation, rising interest rates, market dips, and geopolitical tension, we are seeing a lot of volatility in the market. If you think of the average return, volatility is when returns are above or below that line. The more it swings, the more volatility.
Risk Tolerance
With the volatility we see a lot of people lowering their risk tolerance. How much volatility are you comfortable with? You need to answer this question and then invest according to that. Everyone likes when returns swing upwards but can you handle a downswing?
Join us today as we explore these definitions and more on today’s show!
Listen to the entire episode or skip ahead using the timestamps below.
[0:41] – We don’t lack jargon
[1:28] – Bear or bull
[4:02 ]– Inflation
[6:50] – Recession
[10:42] – Volatility
[12:09] – Risk tolerance
[14:31] – 60-40 portfolio
[15:58] – Dollar-cost averaging
[17:46 ]– Bonds vs stocks
[19:44] – ETFs vs mutual funds
[22:00] – Target-date fund
A Quotable Moment:
“There was a lot of money put into the economy to try to get us out of the pandemic quickly and it did, but now we are seeing the other side of that. That money is out there chasing goods that aren’t there. That causes inflation.”
-Phil Putney