After a banner year in 2021, the stock market has not had a great start in 2022. At the time of this post, the S&P 500 is down almost 10%. The other day, the S&P 500 dropped almost 4% before rebounding to finish the day slightly up. Without a doubt, price volatility has increased and the general mood in the market seems somewhat downtrodden.
The financial media have identified elevated valuations and the prospect of less support from the Federal Reserve as the culprits in the latest sell off. Are they right? It’s impossible to know. As humans, we are all hardwired to seek out and understand the causes for the things that happen in our lives. But complex adaptive systems such as the global economy and financial markets do not conform to tidy or precise narratives of cause and effect. And research has demonstrated that trying to point out a specific cause for what happens in the market is fruitless.
Stick to your plan
What’s a better target for your attention? Ensure that you have a plan to deal with market uncertainty. Once your investment plan is in place, stick to it. Discipline and reasoned action can provide a tremendous boost, both to your morale and your portfolio returns.
At a minimum, your plan needs to address the following questions:
Do I have enough cash or other stable assets to pay living expenses and fund other short-term financial goals during a market downturn?
Can my current asset allocation weather a significant market downturn?
How should I approach rebalancing opportunities?
Under what conditions will I allow myself to deviate from my plan?
How will I keep myself accountable?
The most important thing to keep in mind is to never give up. Market corrections are always hard. Watching your wealth evaporate into thin air can heighten our fears of an uncertain future and invoke an emotional response. That’s why Jack Bogle recommended that you should only rarely look at your account statements.
It’s important to note that the worst outcomes for investors often don’t come from doing nothing. The worst outcomes often come from doing something at the worst possible time. So before taking any action, take some time to go through your plan. If you need to make changes, start small and “sin a little”. And remember, time is on your side, so hang in there.
Matthew Jenkins is the Founder of Noble Hill Planning LLC. Matthew has over 15 years of experience working in both large and small financial services firms. Before starting his career in finance, Matthew served as a U.S. Army Ranger. Matthew values transparency and fair dealing and enjoys helping people prepare for a great retirement.
Not A Great Start To The Year
After a banner year in 2021, the stock market has not had a great start in 2022. At the time of this post, the S&P 500 is down almost 10%. The other day, the S&P 500 dropped almost 4% before rebounding to finish the day slightly up. Without a doubt, price volatility has increased and the general mood in the market seems somewhat downtrodden.
The financial media have identified elevated valuations and the prospect of less support from the Federal Reserve as the culprits in the latest sell off. Are they right? It’s impossible to know. As humans, we are all hardwired to seek out and understand the causes for the things that happen in our lives. But complex adaptive systems such as the global economy and financial markets do not conform to tidy or precise narratives of cause and effect. And research has demonstrated that trying to point out a specific cause for what happens in the market is fruitless.
Stick to your plan
What’s a better target for your attention? Ensure that you have a plan to deal with market uncertainty. Once your investment plan is in place, stick to it. Discipline and reasoned action can provide a tremendous boost, both to your morale and your portfolio returns.
At a minimum, your plan needs to address the following questions:
The most important thing to keep in mind is to never give up. Market corrections are always hard. Watching your wealth evaporate into thin air can heighten our fears of an uncertain future and invoke an emotional response. That’s why Jack Bogle recommended that you should only rarely look at your account statements.
It’s important to note that the worst outcomes for investors often don’t come from doing nothing. The worst outcomes often come from doing something at the worst possible time. So before taking any action, take some time to go through your plan. If you need to make changes, start small and “sin a little”. And remember, time is on your side, so hang in there.
Matthew P. Jenkins, CFA, CFP®
Matthew Jenkins is the Founder of Noble Hill Planning LLC. Matthew has over 15 years of experience working in both large and small financial services firms. Before starting his career in finance, Matthew served as a U.S. Army Ranger. Matthew values transparency and fair dealing and enjoys helping people prepare for a great retirement.
Matthew is a CFA® Charterholder and CERTIFIED FINANCIAL PLANNER™ Professional. He is also a member of the National Association of Personal Financial Advisors (NAPFA) and the Fee Only Network.