While recent market movements aren’t a surprise, it’s still uncomfortable. With the state of the world as it is, we expect an impact on the financial markets. The fluctuations in 2021 resulted in some lows, but also some record highs. A market “correction” is usually marked by a drop of 10% or more. It typically happens every 8-12 months. And, while it’s not fun, it does help maintain a healthy market and avoid bubbles. We were due for a correction. With all of that said, connecting the rational head to a rapidly beating heart can sometimes take a minute. Since we’re bombarded constantly with inflammatory headlines intended to get our blood pressure up and running, I thought I’d step on the scale of reason for a moment to shed light on the big picture. In the midst of the rollercoaster ride, here are a few helpful things to remember:
- You only take a loss when you sell after an investment’s value has dropped. Ultimately, investments are much like other things you buy. You pay a price for each share and, regardless of whether the shares go on sale (when the market drops), you still own those shares. The price adjusts on a daily – even moment-by-moment basis – like a game of chutes and ladders and yet you still own the same shares. The only folks who lose money are those who sell when the price is lower than what they paid. While the market fluctuates up and down, it generally does so in an upward trajectory over time.
- Fasten your seatbelts and hold on tight. This isn’t to say hold on at any cost. One of the many jobs of an advisor is to understand your goals and properly position high quality investments with respect to market conditions, your risk tolerance and need for growth versus preservation. If you are holding some stinkers, get rid of them. But, if you are holding a high quality, properly diversified portfolio, there is no need to react to market downturns. Remember, you’ve hired me to watch the market and adjust your investments as needed. That’s exactly what I do.
- Don’t miss out on the momentum generated by a downturn. Rollercoasters use the momentum generated by the downhill to make it up the next hill. If you hopped off the rollercoaster on the way down, you could very well miss a good portion of the upswing and hurt yourself in the meantime. Timing the market requires a crystal ball and as far as I can tell, those only exist in movies.
- The tendency is to buy high and sell low, despite knowing better. Human nature is fascinating. By the time most people hear about a great investment and want to buy into it, much of the gain may have already taken place. Then, when the market drops, those same folks want to get out because the idea of loss is terrifying. This is where your advisor comes in. When the market drops, I’m like a kid in a candy shop. I want to buy so that we can ride that next wave up. You’d never run to the mall to shop on the day the prices go up. When the market drops, it’s on sale. It's a great time to buy.
- Rebalancing happens regularly. Each time I rebalance a portfolio, I take some of the gains from funds that have done well and buy into the areas that are needed to remain diversified and positioned to take advantage of opportunities. While no one can prevent the market from moving one way or another, we can prepare and plan. That happens on a regular basis.
Market movements aren’t always rational and can feel very uncertain. There are surely no guarantees. But, like we don’t know for sure that the sun will rise tomorrow, we do know that it always has in the past. We don’t know that the market will rebound, but it always has done just that.
If you need reassurance – or want to discuss your investments – don’t hesitate to reach out. I’m always glad to hear from you. If your friends, family members or colleagues need a second set of eyes or haven’t started planning for the future, send them on over. I’m glad to help.
In the meantime, don’t forget the saying “buy on the dip.” It means “shop when the market is on sale!”
A diversified portfolio does not assure a profit or protect against loss in a declining market.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.