If I’ve been doing my job as your fiduciary advisor, you might already be able to guess what my take is on current market news: Unless your personal goals have changed, stay the course according to your personal plan.
Still it never hurts to repeat this steadfast advice during periodic market downturns. I understand that thinking about scary markets isn’t the same as experiencing them.
So, what’s going on? Why did U.S. stock prices suddenly drop after such a long, lazy lull, with no obvious calamity to have set off the alarms?
As Financial Planning guest columnist Kimberly Foss, CFP® described: “To understand the anxiety that led to many investors rushing to sell last week, you need to follow some tortuous logic. … If American workers are getting paid more, then companies will start charging more for whatever they produce or do, which might boost inflation. ‘Might’ is the operative word.”
“Good news, it seems, is bad news again,” this Wall Street Journal columnist added.
While these sentiments may suggest the catalyst for the current drop, they do not inform us of what will happen next. Sometimes, market setbacks are over and forgotten in days. Other times, they more sorely test our resolve with their length and severity. I can’t yet know how current events will play out, but I do know this:
- Capital markets have exhibited an upward trajectory over the long-term, yielding positive, inflation-beating returns to those who have stayed put for the ride.
- If you instead try to time your optimal market exit and entry points, you’ll have to be correct twice to expect to come out ahead; you must get out and back in at the right times.
- Every trade, whether it works or not, costs real money.
Also, be wary of hyperbolic headlines bearing superlatives such as “the biggest plunge since …” While the numbers may be technically accurate, they are framed to frighten rather than enlighten you, grabbing your attention at the expense of the more boring news on how to simply remain a successful, long-term investor.
Instead of fretting over meaningless milestones or trying to second-guess what U.S. economics might do to stocks, bonds and inflation, I believe the more important point is this: Market corrections are normal – and essential to generating expected long-term returns. In fact, periodic setbacks ranging from mild to severe are more “normal” than the record-breaking S&P 500 run-up we’ve been experiencing lately.
If the recent market declines worry you let's set aside some time to talk. If your goals or risk appetite have changed we should make changes. However, if circumstances remain the same it may be best to ignore the short-term news.
Brian Berkenhoff, CFA