A Jewish lesson on the basic principles of investments -opinion

The most important aspect to determine how to react to market jitters is to figure out what your time horizon for the investment is.

Investment graph (photo credit: INGIMAGE)
Investment graph
(photo credit: INGIMAGE)

On Wednesday, I went along with my daughter to the Hakhel ceremony at the Western Wall. Personally, I thought it was a beautiful occasion, with tens of thousands of people from across the spectrum of Israeli society coming together to sort of reenacting an event that stopped 2,000 years ago. The one head-scratcher was the honoring of a certain convicted former chief rabbi, but I’ll leave that for now.

The point of Hakhel was for everyone to come to the Temple at the end of the seventh year (shmita, sabbatical year) and hear the king read from parts of the Torah. Rabbi Yosef Tzvi Rimon writes: “From the verses, it becomes clear that there is an important purpose to this occasion ‘so that they will hear and so that they will learn, and they shall fear G-d, your L-rd.’ On this occasion, we receive the fear of Heaven. This sentence repeats itself twice: ‘they shall hear and they shall learn to fear G-d, your L-rd.’ The first time, there is hearing and learning, and this leads to fear of Heaven. The second time, they will learn the fear of Heaven, ‘they shall learn to fear G-d.’ On this occasion, there is learning Torah as well, but the essence is fear of Heaven.”

“However, it turns out that there is an additional central point,” he continues. “Maimonides (Chagiga 3:6) explains that the occasion of Hakhel is a form of reconstructing the giving of the Torah: Everyone receives the Torah anew. Everyone needs to be there. There are those who hear and understand, and there are those who do not understand. However, all as one, the whole Nation of Israel stands and hears the Torah, stands and accepts the yoke of the kingdom of Heaven.”

As we enjoy the remaining days of the holiday season, stock markets globally continue their downward spiral. The continued raising of interest rates by central banks around the world to battle surging inflation – the result being a self-inflicted recession – and the continuing war in Ukraine are just some of the reasons that have sent global stock markets tumbling. Markets are down nearly 25%, with tech indices dropping more than 30%. We are in a bear Market.

Investors needed to be reminded of basic investing principles

Like Hakhel, investors sometimes need to be reminded of basic investing principles, i.e., buy low/sell high. For young investors, all may not be so bad. According to Ben Carlson, a CFA and Ritholtz Asset Management portfolio manager, “But if you’re a young investor, today’s situation is much better than where we were nine-18 months ago. The S&P 500 is now down a little more than 20%. The Russell 2000 is down almost 30%. The Nasdaq 100 is down more than 30%. Stocks are on sale. They could get marked down even further, but I don’t think too many young people are going to regret buying stocks right now when they look back in 15-20 years.”

The market is somewhat “on sale.” Not to get too stereotypical, but let’s face it, as consumers, no one likes buying retail, and with the recent market pullback, it’s as if the investor is buying wholesale. As I have written many times, if the Rami Levi or Osher Ad supermarket chains had a 20%- to 30%-off sale, shoppers would be lined up around the block to have a chance to make purchases at rock-bottom prices.

Now may be the time to take advantage of the recent market plunge and consider starting to invest in stocks. It’s important to remember that you can lose money in stock-market investing, and there is certainly no guarantee that the market won’t continue to drop. Remember that short-term volatility happens all the time, and markets can and will drop; just look at what is currently happening.

How to respond to plunging markets?

The most important aspect to determine how to react to market jitters is to figure out what your time horizon for the investment is. If you have a short- to mid-term time horizon, you have no business investing heavily in stocks. If you have a seven-year or longer outlook, then short-term swings shouldn’t make you worry, and you should keep your eye on the long-term performance of the stock market.

Based on the phone calls I have received, it’s clear that even those pondering investing for the first time are quite nervous. To illustrate the power of investing over the long term, I will repeat a story I wrote about in this column. I mentioned a client call that I had received about the market drop and her portfolio: “One of them asked me what I thought, and I said that since she has a 20-year horizon, trying to time the market is silly and that she should stay the course. We then went back over her long-term returns and found that because she stayed fully invested during the subprime crisis of 2008 when the stock market dropped more than 30%, she still more than doubled her money if you look at the account value pre-market crash. That was eye-opening for her and convinced her to not panic.”

If you have a long-term horizon, now may be a great time to start investing.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

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Aaron Katsman is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing and is a licensed financial professional both in the US and Israel and helps people who open investment accounts in the US.