The Benefits of Periodic Investing | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Inflation Drops More Than Expected

The Consumer Price Index, or CPI, measure of inflation was reported this past week as having risen 0.1% from the previous month and 7.1% over the past year. While still relatively high, this was better than the 7.3% reading that was expected by a consensus of economists.

Markets cheered this news with the S&P 500 index rising more than 3% in early trading before pairing its gains and finishing up around three-quarters of one percent.

It’s not hard to figure out why investors are so interested in better than expected inflation readings – for one, it’s the problem that got us into this market mess, and two, it makes it more likely the Federal Reserve will stop tightening monetary policy more quickly.

On Wednesday, the Fed raised its key interest rate by half of one percent as expected, but maintained a relatively tough stance toward fighting inflation going forward. Markets sold off, but only by a modest amount.

At this stage in the cycle, investors should be less concerned about inflation, and more concerned about the rate of slowdown in economic growth. In fact, rapidly slowing inflation may be a sign that the economy is slowing down at a faster pace – not exactly something investors should be cheering on.

Featured Insight: The Benefits of Periodic Investing

One of the more important principles for building wealth through investing over the long run is to stay disciplined in making regular contributions to an investment portfolio.

A 401(k) plan is a great example of this through regular automatic contributions from each and every paycheck.

The key to making this work, however, is to ensure you stick with it through thick and thin. Don’t change your approach or invest less when you get worried about the markets going down. In fact, that is when the power of periodic investing shines the most.

For example, if you invested an equal amount of money in the S&P 500 index at the end of every month during 2022, you would only be down about 1% on your cumulative investment despite the index itself being down nearly 15% this year.

Over the long-run, dollar cost averaging by buying more shares for the same amount of money at cheaper price levels helps drive long-term returns by taking advantage of market volatility.

Looking Ahead: Happy New Year!

Last time on the Investors Edge I mentioned the Santa Claus rally phenomenon, and the possibility that the recent strength in stocks could continue through year-end. Thus far into December, equities prices have softened ever so slightly, but there’s plenty of time left for Santa to show up.

While we’re well off the market’s lows for the year, 2022 is still a year that investors will be excited to put behind them given the drawdowns in both equity and fixed income assets.

While plenty of challenges still lie ahead, we can look forward to a new year with a sense of hope and optimism while dealing with each challenge as an opportunity to help advance long-term goals.

I’d like to wish everyone a very Merry Christmas, and a safe, healthy, and Happy New Year!

Copyright 2023 The Business Journal, Youngstown, Ohio.