When the Market is in Turmoil, Remember This, Too, Shall Pass
Volatility may very well be the watch word for the early months of 2022. COVID-19’s many variants - and accelerating inflation - continue to affect the market. Toss into that churning mixture the Federal Reserve’s pending inflation-control actions, and it adds up to uncertainty…unpredictability…instability. VOLATILITY. NOTE: Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.
Our current volatile stock market is not a test of the quality of our investments - it's a test of our commitment to our investment strategy. When turbulent, negative trends are swirling around us, we should stay true to quality investment products instead of following the latest fad. We should stick with a diversified portfolio and remain patient.
For the long-term investor, I recommend tuning out the noise, remain faithful to your goals, and remembering how important (and rewarding) exercising patience can be to achieving long-term retirement goals. Pay very little attention to the day-to-day activities of the more impulsive folks among us.
Back to Basics
Yep, it means getting back to basics. Instead of listening to wild-eyed cable commentators and financial wazoos extrapolating about the market’s latest convulsions and throwing out predictions about the future, use today’s volatility to truly assess what kind of investor you are and how much risk you can absorb before heading for the exits with the thundering herd.
Remember the dreadful March 2020 stock market stampede? It was the end of the world as we know it, some said. But then - amazingly - there was a rapid recovery.
A predictor of how you will behave during the next big stock market correction (and this may not be it), will likely be how you reacted to 2020 stampede. If you panicked and dumped all of your stocks - please don't do that again. Tune out the noise.
A wise sage once said:
Controlled fear is the best fertilizer for future bull markets.
When investors panic and stampede the market in fear, it is actually the absolute best way to correct for overvalued assets…a form of reversion to the mean, if you will. It makes enhanced future returns more achievable. We should appreciate the fact that markets do occasionally correct – and whether or not we approve, they will correct. Turns out that it’s a very healthy activity.
If the value of equities did nothing but rise, they would be riskless, and we all know how risk affects yield. In short, loss is the occasional painful price we pay for future meaningful gain. And never forget that market corrections create market opportunities. For those with cash to invest, the fear expressed by others is very often your cue to buy what they, in a panic, sold.
The more frequently you check on your portfolio the more volatile it will seem, so try not to login into your stock portfolio ever 10 minutes when the market is in turmoil and the investment world appears to be panicking. Stick with those PDQ Principles of investing and breathe in...breathe out.
Always remember: This, too, shall pass.