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#16 - Stocks tank as inflation runs hot



Central banks and China are off

Yep - here we go again.

I've been talking about that we might have seen a bottom in the market, and that the inflation might have hit it's high last month, plus that China would open up.

Boy was I, and everyone else it seems, WRONG.

To be fair, China did open up and the inflation did peak out.

Until this week...

So what happened?

- New inflation and interest rates numbers from the ECB (European Central Bank).

- New inflation numbers from the FED (American Central Bank).

- News about China closing parts of it's country down yet again.

Lagarde, head of the show at the ECB, came with her announcement on Thursday, and said that to battle the inflation they "intend to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting"

and further to "raise the key ECB interest rates again in September".

The July statement was expected, but the September one hit home.

Stocks fell ~2% Thursday.

To make the party even "better", Powell, head of the show at the FED, and his team announced higher-than-expected inflation numbers.

Now we have them up 8,6% from 8,3% last month.

This was at all not expected (!).

Stock fell ~3% Friday.

Then of course China kept to their zero-covid policy, and yet again chose to close parts of Shanghai and Beijing. The are also going to ramp-up their already massive testing program.

So all-in-all we were in for a real treat this weekend (yaay)...

To update you, the S&P 500 index now looks like this. We're right back into the abyss.


I don't normally do any predictions, but I do think we are going to see a negative market next week again unfortunately.

There's a number of reasons:

  • The FED and ECB will have to come up with more tightening.

  • Bitcoin have been slightly ahead of the curve these last 6 months.

  • And Bitcoin fell below a key price-level this weekend.

Normally predictions end up the wrong way, and this one might too.

Let's hope for it, shall we?

By the way sorry to not be the messenger of good news these days, but the world situation is just not good at the moment.

With that said, let's ramp up the positivity volume and go to ETFs.


 

The different kinds of ETFs

There are many, many, many kinds of ETFs but I will try my very best to divide them up into some major "buckets" so you know better what to look for.

Let's strap you in:

First we have "active" and "passive" ETFs.

An ACTIVE ETF is where the company behind it is actively buying and selling stocks, and constantly changing the "anatomy" of the ETF.

They do this to optimize their ETF in hopes of the best return. They do not have a specific underlying index that they copy (like we talked about earlier).

This is for examples Cathy Wood's ARK ETFs, that are created to follow the tech-space very closely.

Normally the active ETFs are also way more specific and focused on a specific theme.

A PASSIVE ETF is one where the company is following the underlying index passively, meaning they copy exactly the index they want you to invest into.

So no one is actively doing anything, basically.

This is most of the iShares and Vanguard ETFs for example.

It's also the most common form of ETFs.

Usually you can read "active" or "passive" on the ETF itself, or it will show in the yearly fee that you pay.

Most active ETFs are 0,5 - 0,8% in yearly fee's, while the passives are below 0,5% and often even below 0,2%.

You might think; "that's a very small difference Martin", but added up over an entire portfolio and then compounded over +25 years of investing, it really does make a difference.

I will always say:

Look for the passive ETFs, unless you have a specific wish to invest into a specialized theme.

Then we have "accumulating" and "distributing" ETFs.

This is a bit more simple to explain, and it basically comes down to this:

Accumulating ETFs don't pay out the dividends from the stock they hold, while the distributing ETFs do.

So, if you want to have a small amount of money being paid to you every quarter (usually), then you should choose distributing ETF.

And if you want them to reinvest the dividends, you choose the accumulating ETFs.

Most of the iShares and Vanguard ETFs have both options for their main and most traded ETFs.

Pay attention that you will, in almost all countries, have to pay taxes of the dividends as they get paid.

In terms of your return, it's better to choose "accumulating".

That was it for today.

Now you now the difference between:

- Active and passive ETFs

- Accumulating and distributing ETFs

And hopefully you know a bit better what goes on out there, on the other side of the window.



Do you want to learn more?

Then book a free 15 min call with me to learn how I can help you, and ask all the stock market questions you have:



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