The News Cycle
Market volatility has reared its head once again. It’s the gorilla in the room for both the stock and bond markets so far in 2022. Inflation risk, invasion risk (Russia/Ukraine), and inversion risk (higher interest rates) have all contributed to uncertainty in 2022.
When thinking about this note, I laughed as I thought, “Things aren’t looking as rosy as they have been!”
Funny how that works. The market goes from optimism to pessimism on a dime. What’s more, the irony is that the last two years have not been so easy thanks to Covid! The pandemic will live in history as one of the worst human tragedies of all time.
The upshot is the investing landscape has been relatively easy since the market lows of March 2020. It’s been great seeing account values rise and rise. Last year, the biggest so-called drop was just 5%. For perspective, an average year features a 15-20% decline.
Furthermore, returns since late 2018 have been exceptional. Consider that only two other periods of market history have we seen such stellar returns. So, it’s even more likely, and perhaps even healthy, for stocks to pull back right now.
We also consider that this could be the third fantastic run for equities. Maybe this will be a fourth straight year of significant gains for stocks.
While we don’t know what will transpire over the rest of 2022, good and bad news will surprise the market at times. That’s what always happens. History shows that stocks drop in about one-third of all years, and panicking is never the right move. Volatility is a feature of the market, not a bug—think of sharp pullbacks as the price of admission.
The techniques we use and teach have worked well. They include:
1. Remaining stoic. Don’t react emotionally to normal market drops. While each one can feel dramatic, stock market declines are normal, and only a naïve and overconfident person would have the gall to try predicting every market gyration.
2. Maintaining safe money. For many of our clients, we have 5-20 years of comparatively safe cash flow needs on hand to cushion the usual down periods in the stock market. That way, we don’t have to sell Microsoft when it’s down dramatically. We can live off our safe money while our stocks recover.
3. Avoiding beanie babies. Nothing against small stuffed animals, but investment fads are not something you should play with. Focus on the fundamentals, not the meme stocks. Is it possible to make $5.7 billion investing in crypto? Yes. But don’t assume you will be that lucky person! While having some play money and even making a few gambles is probably fine, your future self will thank you for putting real money to work in sound investing strategies based on logic and evidence.
We would love to connect if you have concerns about recent market volatility and all the scary headlines out there.
Please feel welcome to reach out to us over the phone, Zoom, email, or in person.
Thanks for taking a look!
Your ISC Financial Advisors Team