April Market Volatility Update

After several years of minimal market volatility, 2022 reminds us the market can be a roller coaster. A big difference between roller coasters and markets: the fun for investors is going up the hill rather than down.

During difficult markets, it is tempting to do something. I have been asked many times in the last several months if we should be increasing cash levels. “It depends on your goals and financial situation” is usually the appropriate answer to this question. Some get frustrated with my answer because it is not a direct answer to what they really want to know. These individuals are typically asking “should we pull money out of stocks and wait for betting timing to re-enter the market?”

I started a book over the weekend by Nick Maggiulli titled Just Keep Buying. I’m already halfway through the book. It is fantastic and will likely be the personal finance book I recommend the most moving forward. It is a great read for anyone regardless of investment experience. Nick Maggiulli is the Chief Operating Officer for a financial firm, and his background is data analytics. He takes a data-driven approach to explaining personal finance concepts with a concise and engaging writing style.

There is a chapter in Nick’s book titled Why You Shouldn’t Wait to Buy The Dip – Even God couldn’t beat dollar-cost averaging. Nick studied the last hundred years of market data and assumed an investor had $100 to invest in the S&P 500 each month for forty years. In the first scenario, he assumes you buy $100 every month for forty years. The second scenario assumes you save $100 each month and only purchase investments when the market is not at an all time high. He adds an additional wrinkle to the second scenario – he assumes the investor is omniscient and knows exactly when the market is at a bottom between all-time highs. He studies these scenarios over every forty-year period since 1920.

The results are staggering. Even knowing exactly when the market is at the bottom, scenario one – purchasing $100 each month – outperforms the second scenario almost 70% of the time. Since none of us are all-knowing, Nick updates the second scenario and assumes you missed the true market bottom by two months. The incremental purchases – dollar cost averaging – outperforms in 97% of these cases.

I’m attempting to compress an entire chapter of Nick’s book into two paragraphs. I strongly encourage you to read his book and see the data for yourself. Nick’s data supports something we often share with clients – time in the market is more important than timing the market.

Inflation, higher interest rates, political instability, and wars are scary. This is the world we live in, and the market is currently a reflection of this. I have expectations for how and when many of these issues may find resolutions, but uncertainty will always be a part of our lives. As soon as these issues resolve, there will be new issues. Ultimately, most markets move higher most of the time.

The action we need to take – together – is to review where you are relative to your goals. Is your portfolio aligned with your goals? If the market volatility is unsettling, are we taking too much risk in your portfolio?

In the coming weeks, you are going to be hearing from myself, Corrie, or Jen to schedule time so we can have these conversations. The outcome of these conversations may result in us making investment changes. We also may determine no actions are necessary at this time.

Reviewing our progress to goals and whether we have the proper guardrails in place to control risk is the appropriate action for us to take in the current market conditions.

Again, you will be hearing from our office soon to schedule a conversation. If you would like to schedule this sooner or have questions, we love hearing from you. Please do not hesitate to contact us.

If you found this information helpful and you know someone that may benefit from this – friends, family members, or business associates – please feel free to share it with them. I look forward to revisiting your financial goals with you and welcome the opportunity to do the same with others in your life that would benefit from these conversations.

Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. The S&P 500 index is comprised of approximately 500 widely held stocks that is generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.