We usually hear a suggestion to invest it and then forget about it until the day we need the money in retirement. Totally understand where this is coming from. People live a busy life and investing is not something they enjoy doing. Therefore, some experts aim to simplify investing and make it easy. Besides, passive index investing is very popular in recent years which does aim to minimize the trade since it is almost impossible to time the market anyway.
However, there is certain drawback especially given the recent significant economic changes that haven’t happened since the 2008 financial crisis. That is inflation. Prior to that, central bank has a hard time to reach the 2% annual inflation target. The interest rate was very low. Hence, return of bond was historically low. This drives many investors to shift to stocks. Many just invest in S&P 500 index ETF solely without any exposure to bond at all.
How things have changed now. Inflation has been ranging and interest rates are much higher. Now, many people have started to add bond to their portfolio especially for older populations.
If we don’t pay attention to this and ignore this big economic situation change, we might be making a mistake. Most of us are doing cost dollar averages which we invest regularly monthly or biweekly whenever we have extra money to invest. That is good opportunity to check the economic and financial news to keep us up to date with the changes. I know it might not be interesting to some of us. Let’s start with 15 minutes of reading the business news every 2 weeks. Take baby steps. We Canadians can subscribe to BNN Bloomberg on YouTube. Hope this can become a habit especially when we see the benefits of it.
When we see significant economic cycle change, it is great time to rebalance our portfolio. For example, during recession, government long bond price will usually spike and cyclical industries stocks will usually plummet. Then, it is great opportunity to sell some bond and buy some stocks. That’s why it is necessary to pay attention. You also need to have a diversified portfolio with different assets that performance ideally in a opposite direction within each economic cycle such as recession, expansion, inflation and etc.
Hope reading business news become our habit and we can understand its impact on our investment, debts and personal finance matters.