Time in the Markets and Dealing with Randomness

Recent stock market volatility is being attributed to the Omicron variant and the recent uptick in interest rates. Yes, the recent sell off can possibly be attributed to these two events. If we simply said there were more sellers than buyers, it would be the most accurate answer but an answer that doesn’t fill any holes. There’s a psychological need to place a story with an event, even when the event isn’t caused by the story. Institutions will typically change their strategies towards the end of the year based on performance or obligations. The news cycle would have little to no effect on some of the needed changes. Let’s not forget the top companies in the S&P 500 are constantly buying their own stock. Regardless, the mere sight of red may have you thinking “is this the start of the next big one?” 

If I asked you to predict if the stock market was going to be up or down tomorrow, how confident would you be in your answer? You would be 50/50, except for the rare instance that the market would end up completely flat. Now look at the stock market over its long history, the line moves progressively up. 

What To Do in Case of the Big One

Often, the best course is to stay the course. It is even better to change your perspective and view downturns as an opportunity. We work with clients all the time to help them put these types of market movements into perspective with their planning. This requires us to take emotion out of our investments even though seeing lower balances feels very personal. 

Reassess your risk tolerance. We understand that risk tolerance questionnaires miss on certain points. When you take your risk assessment during good markets, the answers may have an optimistic tilt. That’s why your advisor considers several components to your risk tolerance, your capacity to take risk and your tolerance to take risk. 

Fight the urge to sell…low. Sometimes it relieves stress to simply back out of the market. What’s really happening is you’re locking in losses. Holding valuable assets during a downturn only impacts the ink printed on your statement. If you hold, we feel the market will ultimately bounce back. It’s a time tested strategy.

Dip your toe in. If there is nervousness about investing in the market, then dollar cost average your cash balance. We recommend this approach to help combat hesitancy. Dollar cost averaging simply allocates your cash balance over a period of time, two or three months for example. Though this strategy does help with some stress, we believe it’s best to invest the lump sum in accordance to your risk tolerance. 

You’ve invested your money with the expectation of that investment growing. That in and of itself is an optimistic act. Would you invest if you were sure you were going to lose? 

To put that in perspective. Have you ever gone to the grocery store to purchase a bag of chips, only to return a few days later and find that same bag of chips is now on sale? We all have! Did you think you just had bad timing and second guessed your first trip to the store?   

The point is, over the long run, today’s news, and whatever volatility it brings, will likely look like a blip on the radar when you zoom out over a 20, 30, or 40+ year investing time horizon. 

Keep the long-term goal in mind and leave the portfolio trading decisions to us. We have rebalance tools and alerts in place to make objective decisions on your behalf, systematically, and unemotionally. We are not market timers and believe that time in the markets is a proven way to make money responsibly. The market is random, and it is up to us to take what the market gives us. 

Disclosures

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.