With everything going on in the world right now, there is a feeling of general unease blanketing our nation. While I cannot speak to the politics of foreign governments, I can mourn for the lives lost in the current struggles and share my thoughts on how I see the markets reacting.
“It’s different this time.”
These are the words overheard every time there is a market correction, and they are both true and false.
True: the world events and news du jour precipitating each market correction creates a unique blend of circumstances.
But false: the responses to and best practices during and after a correction are not different this time. The fundamentals are unchanged. Regardless of the news headlines, all investors are still either buyers, holders, or sellers. The only thing different during today’s market correction versus prior periods of volatility is that we are each older than we were the last time this happened, so we may be at different stages of our financial lives.
The strategies and advice for this period of volatility are the same as the last time. If you are a buyer (adding to accounts regularly), stay the course and try to take advantage of the volatility. If you are a holder (neither adding to nor withdrawing from accounts), make sure you have no expected need for invested capital for the next five years and sit tight.
If you are a seller (withdrawing from accounts regularly), make sure you have short-term and intermediate-term accounts which are positioned conservatively and allow your other longer-term accounts to stay fully invested.
We have been through tough markets before, and we’ll go through them again. The most important lesson we can learn from the past is to not repeat the same mistakes. Investors who took advantage of being buyers or resisted change as holders or sellers made out beautifully by staying put. Those investors who were positioned inappropriately or who were positioned responsibly but reacted emotionally suffered significant financial damage.
Don’t just do something, sit there.
That’s not a misprint. Sometimes the best advice is to do nothing–to not react to the news cycle day-to-day. Invariably, this is another opportunity to take that advice. If your portfolio is structured well, it should be able to withstand whatever comes our way. Take a deep breath and remember that this is a marathon, not a sprint, and do nothing.
We’re coming out of a two-year global pandemic with a recovering supply chain and pent-up consumer demand. The Russian actions in Ukraine are reprehensible and may impact energy prices and delay the economic recovery from the pandemic, but like all news stories this one will be the daily headline until it isn’t, and it will be replaced by something which feels “different this time” soon thereafter.
You can take the time to emotionally react to the news of the world, but I would advise you never to act emotionally regarding financial decisions.
If you do not feel your portfolio is structured to withstand market corrections, this may be a good time to speak with your financial advisor or to get a second opinion from a different one.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual.
It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.
I have been in the financial planning and wealth management industry since 1994, and launched a firm in Maryland in 2003. My passion is helping
- The world became a very uncertain place in the last week, which means more risk in many aspects of our lives, especially markets.
- For the last decade or so, markets seemed to only go up; since the pandemic, risk became a bigger issue.
- Volatile investors expect markets to be over the next 3 months based on options prices.
The world became a very uncertain place in the last week. This means more risk in many aspects of our lives, especially markets. For the last decade or so, markets seemed to only go up, but since the pandemic, risk became a bigger issue.
The figure below is the 3-month implied volatility from the S&P 500; it shows how volatile investors expect markets to be over the next 3 months based on options prices. We see a big increase in the early days of the pandemic, before settling into a higher range.
Between uncertainty around Fed policy and events in Europe, we can expect even more volatility going forward. Many households came out of the pandemic with more wealth than before, and this fueled the recovery. But if markets stay so volatile, their 401(K)s will take a hit and people will start to feel much less secure.
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