It seems the quote, “This is a year to remember!”, now applies to every year. We have hopes of stability and normalcy as a new year begins, particularly with COVID concerns seeming to settle. But before the first quarter ends, we seem to always have some form of disruption. Take 2022 for example:
January 4th – stock market volatility begins
February 24th – Russia invades Ukraine
March 31st – U.S. inflation accelerated to 8.5% for 12 months ended
So what is an investor to do? We have some thoughts based on experience and facts.
A Look at the Past
One of our favorite charts is from an investment partner, Capital Group. We call this chart the “Wall of Worry” as it gives investors a reason to not invest every year since 1934. Here are a few of the headlines:
- US bombs Lybia (1986)
- Record-setting market decline (1987)
- Fed raises interest rates six times (1994)
- Dow tops 4000, then 5000 – market “too high” (1995)
- Global economic turmoil (1998)
- Oil Prices surge (2004)
Sound familiar? A favorite quote of mine is, “History doesn’t repeat itself, but it does rhyme.” This quote is often attributed to Mark Twain although this hasn’t been verified. Regardless, I believe this to be true. As we read headlines from the past 100 years, there is most certainly a rhyme. “But this time it’s different!” say the news pundits and so-called experts. Of course, it’s different. But what have we learned from the past?
The markets most often recover before the news gets better. I distinctly remember March of 2009 as an advisor and investor. The bad market and economic news kept pouring in. Yet, on March 7th that year, the stock market began its historic climb. Investors had numerous reasons to stay on the sidelines and wait until things got better. And for those who did so, they missed historic market returns and most likely cashed in significant losses at just the wrong time.
A Look at the Present
Given the current discouraging headlines, what are we to do? A few things:
- Call your Advisor: Simply having a conversation with an investment professional has proven to be effective. You need to voice your concerns and have those concerns heard. Once this occurs, we have experienced our clients re-center on their financial planning goals and stay the course.
- Prepare or Update your Retirement Plan: One of the most effective tools we have found is to prepare or update your retirement plan using current data. For many clients, they were ahead of their investment return goals given the historic market climb of recent years. Given the recent market drop, most clients are still right on track with their long-term plan. If you see that your long-term goals have not been compromised, you have more confidence to not let fear reign and to remain focused on your plan.
- Turn of cell phone news feeds and TV pundits: We understand this is not easy, but we believe blocking out the noise and hysteria is much better for your overall health and finances. We are not suggesting that you completely ignore ALL news. It can be enjoyable and helpful to stay in tune with certain news. The challenge is to be discerning and limit the rate that you are digesting world-wide news that most likely is propaganda and unhelpful.
A Look at the Future
So, what is ahead of us? We don’t know. The “experts” don’t know. You don’t know (if you’re honest). What do we know? “History doesn’t repeat itself, but it does rhyme.”
What have we learned from the past? Timing the stock market is extremely difficult, if not impossible. Even if you get the exit timing right, you have to time the re-entry point. And then you have to do this all over again each time you get concerned. How is that a good thing for your financial plan and overall health?
I’ll close with a recent quote from Michael Dow, Chief Investment Officer and CFA® at Beacon Pointe: “This doesn’t sound exciting, but having a diversified portfolio is the best protection an investor can have right now. And know that in the short run, we’re going to see volatility. Volatility is the price we pay for building wealth.”
That last sentence really stood out to me. It’s true – Volatility is the price we pay for building wealth. Give attention to the things you can control. Accept the things you can’t. And ask for help when you need it. We all need help sometimes.
*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.
Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss