By Daniel Staiger, CFP®, CRPC®
I think it’s safe to say that we were all caught off guard at the beginning of 2020. Now, two years later, we’ve learned that we can’t predict much, especially the timing of when economic instability or down markets begin and end. Although this has certainly been a record time for anxiety and stress, we aren’t powerless. In the midst of negative economic data and other unwelcome headlines, here are four ways that can help you take control and prepare your finances for whatever comes next.
This concept applies to many areas of life, but it’s extremely valuable to remember when it comes to making any hasty changes to your financial plan. News outlets want to catch your attention, which means they are prone to exaggerate information or possibly not include comparisons that would clarify what their information means. This can be frustrating.
When the marketplace is behaving erratically, you as an investor need to do the opposite. One of the worst mistakes we can make is to sell from a place of panic. That’s because acting emotionally can turn a temporary loss into a permanent one. Instead, you need to review patterns of the past, recenter your thinking, and make level-headed decisions.
History tends to repeat itself, and that’s certainly true when looking at the stock market. Major drops in the Dow are nothing new. In fact, it’s been rising and falling in record-setting fashion for nearly a century. Whether it’s a depression, recession, or pandemic, the economy has shown its ability to bounce back from even the hardest of times.
|
Economic Crisis |
Peak Market Decline - Dow Jones (%) |
Time it Took to Hit the Bottom (Months) |
Time it Took to Fully Recover (Months) |
|
Great Depression |
-88.7% |
34 |
302 |
|
Early 2000s Recession |
-34.0% |
43 |
47 |
|
Great Recession |
-49.3% |
16 |
47 |
|
Pandemic |
-37.0% |
1.5 |
7 |
Sources: Trefis Research and Data[1], Forbes[2], and Google Finance[3]
It’s common for people to feel worried when they see their investment values fall during uncertain times, but the last thing you should do is pull out of the markets entirely. When you do this, you’re locking in the low value of your accounts instead of letting them rebound before you withdraw. Putting your money into a volatile market probably sounds like the last thing you want to do right now. But investing is not about timing the market, it’s about time in the market. Over time, consistent investing can lead to growth. It’s just hard to see when you’re looking at the short-term fluctuations that happen day to day.
Based on what we’ve seen in the past, what’s going to happen when we ride out the stock market roller coaster and keep investing consistently? We canl experience growth, work toward financial confidence, and save ourselves a lot of stress when future downturns come.
When the markets take your money on a roller coaster, it’s not hard for your asset allocation to get out of whack. Let’s say your desired asset allocation is 70% stocks and 30% bonds (this will vary based on your age, goals, and risk tolerance), but as volatility continues, your allocation shifts to 80% stocks and 20% bonds. To rebalance your portfolio and keep your risk level stable, you’d have to sell some stocks and buy more bonds.
You can do all the research you want, but ultimately, it’s extremely beneficial to talk with someone who researches this information daily and can help answer concerns specific to your situation and phase of life.
Depending on your age and financial circumstances, you might not feel like you have as much time to let the market bounce back. This is why it is even more important to make sure the types of investments you have align with your risk tolerance and time horizon. Are you ready to see all your options for ways to help protect your money and set it up to succeed in any market environment? Schedule a no-obligation introductory meeting by emailing me at daniel.staiger@raymondjames.com or calling (631) 319-6777.
Daniel Staiger is a partner at Matarazzo Staiger Wealth Management and Financial Advisor with Raymond James Financial Services. Matarazzo Staiger Wealth Management is an Independent Practice and our team is committed to helping families, pre-retirees, and union employees build a sense of security and confidence around their financial future. With more than 10 years of experience, Daniel is dedicated to providing trusted advice and tailored solutions that help his clients realize their financial potential. He is known for building relationships with his clients so he can better understand their values and the goals they want to pursue. As a CERTIFIED FINANCIAL PLANNER™ and Chartered Retirement Planning Counselor℠ professional, Daniel specializes in serving union employees, such as tradespeople and teachers, with well-thought-out guidance and a personal touch. When he’s not working, Daniel spends his time pursuing interests such as guitar, volleyball, golf, and cooking. He is also an active member of his church. To learn more about Daniel, connect with him on LinkedIn.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The examples are for illustrative purposes only. Individual cases will vary. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Any opinions are those of Daniel Staiger and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.
[1]https://dashboards.trefis.com/data/companies/SPX/no-login-required/E7CuKj6x/The-Coronavirus-Crash-vs-Other-Historic-Market-Crashes?fromforbesandarticle=trefis200313?fromforbesandarticle=trefis200313
[2]https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=55591bb446cf
[3]https://www.google.com/finance/quote/.DJI:INDEXDJX?sa=X&ved=2ahUKEwj5gYnI8NbzAhWoTt8KHSlPB5EQ3ecFegQICRAc&window=5Y
