I'll start this months blog with a single phrase - The sky is not falling!
While we have seen the market behave in some interesting ways for the last year and a half, we have seen significant growth as the economy continues to expand after a rapid period of recovery. We are now in a recovery phase in which many investors begin to become unsettled, especially those not seasoned. When investors are unsettled, they tend to make drastic decisions to buy and sell frequently, which could cause them to lose out on long-term gains.
It’s all too easy to let the hype get to you and become fearful of temporary declines in the market, which ultimately cannot be timed. Seasoned investors base decision-making on the facts. The facts are that the Fed remains accommodating, the economy is still expected to grow at an above-average rate, and corporate profits are on the rise.1
Throughout the years, we have seen significantly more volatile swings in the market than what we are presently experiencing. Markets can experience significant drops at the beginning of the week, but still end up reaching new heights at the end of the week, or vice versa. So, what should we do about it?
Two Words: Don’t Panic
Instead try these three things.
- Educate Yourself One of the most important ways to keep your cool when we are navigating these uncertain times is to stay in the know. Almost every media outlet covers the markets and economy these days. One of the best ways to get a snapshot of what’s happening when you need it is to use a news aggregator which automatically pulls the top stories from multiple sources. However, we don’t encourage you to feverishly check the markets and cause yourself extra stress. Just know that everything is cyclical and most likely whatever the market and economic conditions may be at the moment we’ve seen them before, they are always changing, and we will see them again.
- Accept Volatility Here’s the thing, market volatility is a thing. Although, there are certain other facts about investing that we need to understand, outside of real market volatility, fluctuations in the market occur on a daily basis. If we focus too much on these smaller swings, when real volatility occurs, we will not be able to handle it. When the stock market has a significant decline, it is considered a correction. Stock market corrections occur on average every two years or so. However, corrections are a necessary component of a healthy economy and are generally followed by quick recoveries.2
- Understand That Perfect Timing is an Illusion Many fly-by-night commenters will have un-seasoned investors believing that they can somehow manage to “time” the market. However, this is an illusion. Any investor who wants to see long-term success and gain significantly over an extended period of time is better off riding out market volatility when they have a plan in place. You will be in better shape with smart financial goals and a map to navigate how to achieve them.3
From our viewpoint,the most essential way to stay chill during the expansion period of our present economic recovery following a global pandemic: stay the course. You have a plan. You have a trusted advisor. You have the tools and resources to understand that making drastic decisions to buy and sell during periods of volatility is usually not an effective strategy. Most investors who stay invested and ride out the storm out-perform those who attempt to time the market. Remember, it’s time in the market, not timing the market.
Stick to the plan and keep yourself informed as to what is happening on a daily and weekly basis. Do check-ins by reading blogs, checking in with your advisor, and being honest with yourself. We have no control over daily ups and downs in the market. What we do have control over is our mindset and our attitude as investors. Stay tuned and stay calm.
2 How to Handle Stock Market Corrections - Investing