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AVID Chat #56: What Do Gas Prices Have to Do With Picking Stock? Thumbnail

AVID Chat #56: What Do Gas Prices Have to Do With Picking Stock?

Investing Behavioral Finance

It’s easy to notice when gas prices go up, because they’re posted everywhere you go. Often, people will talk about gas prices as a sign of inflation because it’s such prevalent information that everyone can relate to. However, if you look at how gas prices raise and fall, they often come close to averaging out when you consider inflation and other environmental factors. Currently, gas prices are close to $3.33 -- slightly above the “average” on this diagram:

Often, people become stressed over things like gas prices, inflation, or the “latest” individual stock that’s being lauded as the best new thing for investors to incorporate into their portfolio. The foundation for this stress isn’t usually because their financial life is directly impacted by the price of gas, or by the latest stock that’s skyrocketing.

They feel overwhelmed because between the mainstream media and other financial news outlets focusing on specific topics intensely, people develop an acute awareness of them and are often afraid that they’re missing out on something incredible.

However, this is most often not the case.

Let’s look at individual stocks as an example. Many stocks from companies that would be considered relatively successful, like Stitch Fix or Zoom, hit the ground running with a huge gain in the stock market, only to plummet shortly after going public.

If you had a large percentage of your portfolio concentrated in these newly-public companies when they were at a high but didn’t sell before they came back down, you’d be in a tough situation where the majority of your portfolio was tied up in a stock that fluctuated wildly in a short period of time.

This is where the importance of a financial plan comes into play. When it comes to your investments (and your long-term strategy), it’s important to remember that you’re running a race that’s unique to you. Your portfolio should be balanced, and geared toward your specific goals and retirement horizon. Yes, your long-term investment strategy should account for inflation. But you can’t shift everything in your strategy each time the price of gas fluctuates because (as shown in the chart above), that happens constantly.

Partnering with a financial planning team to help act as a sounding board when financial news leaves you feeling anxious can help. Reach out to us today by clicking here: https://avidplanning.com/contact