The U.S. Economy Shrinks: How This Affects Your Investments

At the end of June, the Commerce Department released its updated figures for the U.S. economy. During the first quarter of 2014, our economy contracted at a seasonally adjusted rate of 2.9%, the fastest rate of decline since the first quarter of 2009. This is the sharpest pullback since the recession ended five years ago.

According to Jonathan House of the Wall Street Journal, “The economy’s stumble in the first three months of this year has once again dashed hopes the recovery was on the verge of switching into high gear.”

In response, stock-market futures turned negative. Economists, like Chris Rupkey of the Bank of Tokyo-Mitsubishi, weighed in with comments like, “It does not sound like the economy has reached escape velocity no matter how you try to spin it. It’s going to take some big numbers the rest of 2014 for the economy to hit 2% growth.”

How do you respond to information like this? Maybe you already have. Did you adjust your stock holdings? Maybe you decided to change your investment allocation. I have little doubt that some people moved their money into cash and fixed annuities in the search for safety.

Yet, in spite of this early-morning report, the Dow Jones Industrial Average went up 50 points later that day. The S&P 500 increased 30 points (almost 7/10s of 1%).

Let me remind you of two cornerstones of prudent investing:

  1. Trying to time the market is hazardous.
  2. Emotions can be more powerful than logic.

Responding to daily news rarely contributes to a successful long-term investment experience. Historical evidence indicates it is much wiser to develop a diversified investment allocation and strategy at a level of risk and reward that is appropriate for you.

In other words, develop a plan and stick to it without trying to predict the inevitable short-term market fluctuations. Daily economic news is interesting; it is just not particularly helpful.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.