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High inflation and the war in Europe are causing major stock market shocks in 2022. The Federal Reserve in the USA has already started to increase interest rates and the ECB has signalled that there will be interest rate increases in both July and September of this year.

Inflation continues to rise which is causing investors to believe that Central Banks may be forced into even more aggressive monetary policy tightening. The probability of a recession in the near future has also increased significantly.

All this news can cause investors to panic and take their money out of the stock market but in most cases that is a very bad idea. If you invested €10,000 in the S&P 500 on 01/01/2002 and withdrew your money on 31/12/2021 the value of your investment would be €61,685. However, if you missed the stock market's 10 best-performing days during that time period the value of your investment would be €28,260. J.P. Morgan confirmed that the best 10 days in the market from 2002 through to the present day are as follows:

As shown in the table, the best 10 days occurred after big stock market falls in the middle of the 2008 financial crisis and just after the onset of the global Covid 19 pandemic. This is a pattern and stock market history shows that the stock markets worst days tend to be followed by it’s best days. If you panic and sell after the stock market has fallen, or indeed if you try to time the market in general, you are likely to miss the upside. Behavioural economics show that we are likely to react to losses and by doing that we really do miss out on the best days that are to follow.

It is also important to understand that the stock market is a leading indicator. This means that stock market prices are based on what is perceived will happen in the future. Investors will look at economic data which they believe will result in a future economic change. This means that the stock market will fall before we feel the economic downturn in our day-to-day life and rise before we feel the benefits of economic expansion. For that reason, it is extremely hard to time the stock market, as when it falls it falls suddenly and quickly. A company's stock price represents the firm's expected earnings, not current earnings. On the positive side, this also means that deep in a recession, the stock market can see green shoots of positive economic growth, which also leads to the stock market rising just as suddenly and quickly.

If you are concerned about the value of your Investment or Pension policies speak to your local Financial Advisor to ensure that you are properly diversified; however, in the majority of cases now is not time to reduce risk within your portfolio. If anything, you might consider increasing risk!

Marie Carr MSc BBS QFA RPA SIA is a Qualified Financial Advisor, Retirement Planning Advisor and Specialist Investment Advisor.You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on marie@jfl.ie.