After a three-year rally, the financial markets have been down for seven straight days until yesterday’s rally barely before the close. This marked the worst slide since the pandemic decline in March of 2020. (1) Monday’s market dip put the S&P 500 down over 10%, which is officially called a “correction” on Wall Street. (2)
In addition to the stock market decline, inflation has been causing concerns. Because inflation is reaching 40-year highs, it is expected that the Federal Reserve will begin raising interest rates in the spring, which could potentially slow the economy. (3)
Investors can be understandably nervous about their investments and their purchasing power. 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 actually fairly regular events. In fact, drops of 10% or more happen about once a year on average: (4)
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.
With so much uncertainty, volatility right now is extreme. The VIX, or the market volatility index, is at the highest level in nearly a year. (5) However, as we get more information, it is likely that day-to-day market fluctuations will decrease.
While it may be easier said than done, successful long-term investors know that it’s important to stay calm during a market correction.
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.
Remember That Your Portfolio Is Diversified
Fears about inflation, volatility, and market declines can be stressful. However, it is important to keep in mind that while the stock market may be down, your portfolio is made up of stocks, bonds, international securities, real estate, and other assets that are designed to work together to decrease overall losses. If you have questions about your portfolio, get in touch with our office.
Review Your 401(k) and Other Accounts
Now is a good time to take a look at all of your investment accounts, including your 401(k) to make sure it is well diversified. If you have not rebalanced your other investment accounts in the last year, get in touch with our office and we’ll take a look and offer recommendations to minimize potential losses.
Get in Touch
Whether you’re newer to investing or an experienced investor, it’s helpful to consult with an objective third party. Human nature causes us all to act out of emotion when our accounts go down. As an independent, fee-only firm, we put your best interests first. We seek to serve as a support system for our clients, helping them "see through the noise" of today's distractions in order to stay focused on what's important. It’s easy to schedule a meeting here: https://www.andersonfinancialstrategies.com/schedule-a-meeting
We’re Here for Your Friends and Family
If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes simply speaking with a financial advisor may help investors feel more confident and less concerned with the day-to-day market activity.
Shon Anderson is president and chief wealth strategist at Anderson Financial Strategies, LLC with over 15 years of experience. As a fiduciary, Shon’s mission is to provide his clients with quality financial expertise along with rapidly responsive service through an honest relationship. He specializes in providing family office-style services to help his clients organize and focus their financial life. Shon graduated from Wright State University with a bachelor’s degree in financial services and an MBA in finance. He is a CERTIFIED FINANCIAL PLANNER™ practitioner and holds the Chartered Financial Analyst® (CFA®) certification. His insights have been quoted in leading financial news publications such as CNBC, Yahoo Finance, Fox Business, Consumer Reports, Forbes, Bankrate.com, Investment News, and Kiplinger. Shon serves as an adjunct professor teaching personal finance courses at Wright State University, leads CFP® exam review courses for Keir Educational Resources, and is president of the CFA Society Dayton. Shon and his wife, Jessica, reside in Sugarcreek Township, Ohio, and are blessed with triplet daughters, Elizabeth, Bridgette, and Alexandra, along with their son, Jacob, and dog, Jack. Over the years, Shon has been involved in several volunteer organizations including the Wright State chapter of Delta Tau Delta as an alumni advisor and was a Big Brother in the Big Brothers/Big Sisters program. To learn more about Shon, connect with him on LinkedIn.