The U.S. stock market had its worst start since 1939 this year – and some experts feared that was just the beginning. With inflation at its highest in over 40 years and volatile trading days, the correction many investors warned us about has come.
Big stock market losses are nobody’s idea of fun. But they have been happening this year with dismaying regularity. The good news- if we can offer some to slow your heart rate- is the stock market has had five large crashes in its history, and each time it has bounced back. The biggest variable is how long it took to recover.
The main thing to remember is to not panic.
You never know when the next big crash will be or what will prompt it, whether it’s COVID-19, or the Great Recession, or what we’re going through now. As we regularly advise our clients, you need to have a component of your portfolio always prepared for when things get bad.
What can investors do to prepare? Having the conversation we’re having right now is a good place to start. And we get it- we understand the panic and it’s justified. It’s not just a bad day or a bad week. The S&P 500 has fallen seven weeks in a row and even briefly entered bear market territory, Wall Street jargon for a decline of at least 20 percent.
So what are we doing about it?
Buying more stocks and bonds at discounted prices!
This isn’t an attempt to make a smart bet that the stock market has already bottomed and is about to start a powerful rally. It’s just smart investing- continuing with investments we’ve been making for decades, despite the market’s often obnoxious behavior. What we typically see during these periods is that long-term investment numbers are pretty good, even though the short-term results are painful.
And while it’s difficult to watch your net worth tumble - this market is down 20%, and the Big Tech stocks that dominated many company 401k’s have been down 30%- it’s important to note that to the patient investor go the spoils.
Quite frankly, the market should be down, as most now understand the government’s ‘borrow and spend’ addiction has gone too far this time. The politicians will get the message, they will make a few moves and a few promises to be better, the market will respond and come back. It always comes back - sooner or later. For those who believe the market will rebound eventually, stocks are currently 'on sale', and well-run companies picked wisely will benefit, and many dramatically at that.
Invest for the long term and be patient.
For those who don’t believe in the rebound - the pros are watching you. And their favorite signal is when you sell. Once individual investors sell in a market panic (or, as they say “capitulate”), it is their most reliable signal that the market is near the bottom and about to spring forward.
Instead of selling - and being canon fodder for the pros - prepare for market turn-downs in advance. The market goes down 10% every 12-18 months on average, and it goes down 20% or more roughly every three years. Count on it - so you won’t be surprised! Own enough steady assets to fund your lifestyle so you aren’t forced to sell your stocks in a downturn.
Fear and greed rule the markets - they always have.
Understand that the economy is never as bad as it seems when we are most fearful, nor is it as lucrative and never-ending as it seems when we are collectively greedy. Instead, recognize each, play the long term, and you will come out ahead.
Forgetting about the news entirely is one way to do that, but another is to try to understand the risks and rewards and stick with a long-term strategy. As always, we’re here to help see you through the ups- and downs- so send us an email, give us a call, or visit us online.