We've seen the general markets drop nearly 20% from their peak early in the year to 'bear market' territory. The NASDAQ over 30% down. So what does all of this mean and, as investors, what should we be doing?
I've always found history to be a good place to start looking. Although the past does not guarantee future results, reflecting on history can help us take a step back and look at the forest instead of just the tree in front of us. I want to preface this by saying I am not a fortune teller so I am unsure what is going to happen with the markets, but I do believe in reading/listening to others viewpoints and coming to my own logical conclusion. With that said, here are some facts and my short thoughts on the markets.
According to marketwatch.com, the S&P peaked at the end of 2021 at 4766 and as of today (5-12-22) it was around 3863....down almost 20%. The bad....Russia-Ukraine, increased interest rates, inflation and gas prices. The good....consumers still seem to be spending, wages have been growing, unemployment rate is still low.... (with many employers looking to hire), large consumer demand in many sectors, still a historically low tax and interest rate environment. There is still good news out there but yet the markets are reacting largely negative.
American Funds has a great educational piece called Keys to Prevailing through Market Declines this can give us some great perspective on how often we see declines in markets and some things to think about. I want to highlight a few things in the blue box on page 4 and make some of my own comments.
- Look beyond the headlines - media wants to sell advertising and headlines help them do that. Find sources you know and trust and turn down the noise.
- Diversification is important- it's likely we've had a conversation about diversification. We've also talked about having money you'll need in the next 1-3 years in a bucket that isn't subject to market fluctuation. As hard as it is to see markets fall...keep this in mind. Unless you need the money today, it has time to come back.
- Timing the top or the bottom is difficult- For the emotions of investing, having an asset allocation that meets your risk tolerance and time horizon is the number one thing we can do to help smooth out the ride.
- We are always here to have a discussion about your risk tolerance, time horizon and goals. - We want to help simplify the financial jargon and help you make good decisions about your money so you can achieve those goals.
So what does this mean for all of us investors and what should we do? Sometimes we feel compelled to do something, when the right move may be to do nothing at all and just hold on. I have no idea if we are at a bottom or even near a bottom. I think anyone who tells you they know for sure is not telling the truth. What I do know is people still need houses and food...and want many other things, companies make money when people buy things, people working are making more than they did last year and I see a lot of 'Now Hiring' signs when I drive around. Do those things guarantee the stock market goes up (or down)? Absolutely not. Do I believe people will continue to purchase things? Probably.
As always, before making any knee jerk reactions, take a deep breath and know that we are just a phone call away. While we all know the sting of loss, we also understand things will get better over time.
Enjoy the day!