About 12 years ago, as the world went into a tailspin in the aftermath of the banking crisis, a certain Ben Bernanke and the Federal Reserve embarked on a series of unconventional tools to rescue the economy from falling into a deep depression.
Among the actions taken by the Fed at the time were:
- Reducing interest rates to the lowest levels in history
- Bailing out those “Too Big To Fail” Wall Street institutions
- Marrying those troubled banks together
- Lending to various sectors of the economy to sustain the credit market
- Force feeding the economy with trillions of dollars through “quantitative easing”
While it could be still early to judge Bernanke’s legacy, in hindsight, we could see the effects of those actions today – a redistribution of wealth from the uninvested to the invested. Those who relied on income each month did not get much pay raise; in fact, their real income dropped. And most of the value ended up in assets, increasing their prices.
That is the key consequence of quantitative easing. The vast creation of money will dilute the value of money (to a certain extent), but it will create inflation in asset prices.
As Milton Friedman, one of the great economists of the 20th century, once said “One of the great mistakes is to judge policies and programmes by their intentions rather than by their results”.
What we are highlighting is the importance to stay invested with the correct assets. While there was a time for holding cash, the time to stay invested is now.
Why? Simply put, you’ll have a front-row seat to witness the market recover, and your investments could experience significant gains during this period. What we’ve learnt is that the market always does get back on track, even though this could potentially take years.
Investing right now can seem intimidating, but that’s where you rely on managers you trust.
While it’s not always true that time in the market is better than timing the market, being invested puts the odds in your favour.