Last month I shared an article about what to do in a market downtown (last financial blog), and I wished I didn’t have to revisit this conversation, but the last few days are showing us this is not yet over.
In summary, we talked about the high rates of inflation. New numbers came in and showed that inflation had not peaked in March as was originally thought because we saw May numbers going higher. The Fed is poised to have another interest rate hike, either 0.5%, and now whispers of potentially a 0.75% hike. Gas prices continue to climb higher, and the war between Russia and Ukraine is still going on.
Since the last article, we have officially entered a bear market as of June 13, 2022. A bear market is described as a 20% decline from the peak.
Again, your overall investments are likely declining in value. This is also a rare occurrence that almost all asset classes are losing value (cash, bonds and stocks) are some of the major asset classes.
It sounds like a lot of bad news, and the way news is shared now makes it feel even worse. Almost everything is considered “breaking news”.
What can you do with this information?
First of all, do not panic. I know that is sometimes easier said than done. But that will be the best course of action under these circumstances. If you are a newer investor or just starting to pay attention to market news, it might be easy to want to panic and sell. A good friend shared this quote with me by Warren Buffett, “The stock market is a device to transfer money from the impatient to the patient.”
You might have also entered a new phase of life, for example retirement. If you are not drawing on your investments, this provides an opportunity for it to rebound. If you are drawing on the assets, look to see if you can temporarily decrease the amount you are taking out. When you take monies out while the markets are declining, you have less assets that have the potential to rebound.
As someone who has been in the industry for over 20 years, I have seen a few market downturns, and none of them have felt good. The key to being able to withstand a downturn is not panic selling, but to ensure that you were appropriately invested in the first place. When the markets are only going up, it is easy to get carried away thinking that it will always continue to do so. When the markets are being volatile on the downside, it is also easy to forget that based on history, it will come back – we just don’t know how long it will take.
What I have experienced is for those investors who sold out their investments, they took too long to reinvest and sat on the sidelines in cash, losing significantly when the markets rebounded. For those who took some off the table, they fared a bit better, but still lost opportunity. Those who stayed in and experienced the declines, experienced the best outcome because when the markets did rebound, their accounts also rebounded.
This chart by “Carl Richards: Behavior Gap” speaks exactly to the cycle we find ourselves in. When we are in the cycle of a market downturn, it’s easy to get caught up with the day to day experience of what the markets are doing, but based on history, when we look over the decades of investing, we can see that it has been an increase – over time. The key to this, is understanding your time frame for investing. I always caution, never invest cash in the stock market that you will need in the near term as none of us can predict what the markets will do in that time.
If you have excess savings in cash, this may be an opportunity to invest in the markets, as they are now considered “fairly valued”. For a very long time, the markets have been considered overvalued.
If you are not sure you are receiving the appropriate guidance, both from an investment, but also from an overall financial planning perspective, I would love to speak with you.
As always, if you need to talk, I am here. Please do not hesitate to reach out to me as I know this period can be unnerving to watch your hard-earned assets decline in value.
