January 25, 2022
After a three-year rally, the financial markets have been down for seven straight days, marking their worst slide since the pandemic decline in March of 2020. Monday’s intraday lows rattled many investors as the S&P500 briefly touched correction levels (-10%). During Monday’s session, the Nasdaq Composite was down more than 4% intraday before rallying to close the day positive. This was the first time we have seen this level of volatility since the financial crisis of 2008.
In addition to stock market declines, inflation has been causing concern. Because inflation is reaching 40-year highs, it is widely expected that the Federal Reserve will begin raising interest rates in the spring, which could potentially slow the economy. The pace of increases and how quickly they reduce their 9 trillion-dollar balance sheet remains to be seen. All eyes will be on the fed in the coming year to see how they navigate this sea change in fed policy.
Investors are understandably nervous about their investments and their purchasing power. If you are worried about your portfolio, you’re not alone. But during stock market volatility, it’s important to keep a level head to avoid financial mistakes.
At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Declines in the Dow Jones Industrial Average are fairly regular events. In fact, drops of 10% or more happen about once a year on average:
Ride Out the Uncertainty Storm
It’s important to remember that markets dislike uncertainty. Currently, there is a lot of uncertainty regarding the continued coronavirus pandemic, inflation, interest rate hikes, tensions between Russia and Ukraine, and earnings reports due out for several large technology companies in the coming days.
There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during increased market volatility.
Market volatility has increased in recent years and the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.
The Importance of Diversification
Fears about inflation, volatility, and market declines are stressful. However, it is important to keep in mind that when the stock market is down, your portfolio should be diversified with other asset classes that are designed to work together to decrease overall volatility. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. If you have questions about your specific situation, don’t hesitate in reaching out to us today.
About Rocklin Senavinin, CFP®
With over 20 years of experience in the financial planning industry, Roc has dedicated his career to helping individuals live comfortably in retirement and enjoy the assets they have spent their career building. He is co-founder of Fiduciary Wealth Management, a fee-only registered investment advisory firm in Little Rock, Arkansas. As a CERTIFIED FINANCIAL PLANNER™ professional, he has advanced training in the holistic process of creating a personal financial plan that addresses a person’s comprehensive needs for the short and long term. To learn more, connect with Roc on LinkedIn or visit www.fidwm.com. If you have questions, feel free to schedule a phone call using this link.
The views expressed represent the opinions of Fiduciary Wealth Management, LLC and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person.
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