The stock market is down more than 20% for the year as of this writing, and this could not have come at a worse possible time. After all, inflation is currently at a 40-year high, so the purchasing power of every dollar we earn is worth less than just a year ago.
And, did I mention that even even the best high-yield savings accounts are still earning just a little over 1%?
If you care about your finances at all, you already know that pretty much all news is bad news at the moment. What’s even more stressful is the fact nobody knows when the pain is going to end.
Investing With Confidence In These Crazy Times
With all this being said, plenty of fortunes have been made during times when it seems like nothing is going right. Remember when the Dow Jones Industrial Average spiraled down to just over 20,000 during March of 2020, when we were in the midst of the darkest days of the pandemic? Investors who bought the market during those days and in the months that followed saw the Dow surge to over 33,000 by the end of March 2021. This means that, if you invested during the beginning of the Covid-19 pandemic, you would have seen a more than 50% return over the course of just one year.
And, even now, the Dow is still over 31,000 (as of this writing).
The fact is, investing in the stock market has always been volatile, albeit at some times in our history more than others. But, how can you stay confident in your plan when it seems like the sky is falling in the investment world? I reached out to some financial advisors for their insights into the best ways to stay calm and on track during times of market uncertainty, and here’s what they said.
Get Nerdy With Data
Financial advisor Melanie Simons of ReFrame Wealth says that looking back at historical investing data, or “getting nerdy” as she calls it, can help us feel better about where we’re at right now.
It’s only natural to feel aversion to loss, but a couple quick calculations that incorporate probabilities and historic return will give you a sense of the real damage that a market has caused, she says.
Simons adds that, when markets are down 20%+, it can be easy to wonder how you’ll ever make up for those vanishing dollars.
“But we rarely feel such intense emotions when markets rise by 20% or more,” says the advisor.
Instead of feeling panicked, it can help to let science level-set your emotions. In other words, look up the historical data of the stock market or other investments you own, and you may start to see that right now may just be a blip on the radar in five years or ten years.
“If you don’t have access to calculators or software, call an advisor,” she says.
Don’t Time The Market
According to financial advisor Andrew Westlin, who works as a financial advisor for Betterment , trying to time the market is one of the biggest mistakes investors make during times of market turmoil. In other words, they might try to buy stocks or other securities at their lowest then sell at their highest, which can be difficult to execute when you don’t have a crystal ball. Trying to time the market can also mean selling investments before they hit the bottom to avoid substantial losses, then buying back in at just the right time.
“It’s so difficult because you have to be right twice — on the way out and then on the way back in,” he says.
Regardless of how far away you are from retirement, if you sell out of the market, you more than likely need to buy back in at some point.
“You might sell out at the right time, but if you wait too long to get back in you might be in a worse position than if you had just weathered the downturn,” says Westlin.
Stick With Your Plan
If you have a carefully thought-out investing strategy in place, then you likely do not need to worry whether the market is up or down this year, next year, or pretty much any time in the future. If you don’t have an investment plan, then it’s probably time to come up with one or reach out to a financial advisor or a robo-advisor for help.
Financial advisor Erica Arroyo of MA Private Wealth says the investors and retirement savers who are concerned about dropping balances should evaluate the strategy they have in place first and foremost, “because strategy is absolutely critical whether the market is up, down or sideways.”
Arroyo says her firm advocates for a well-designed portfolio that is diversified among many asset classes and making tactical adjustments if needed.
“Put an intelligent plan in place so that you can rest assured that your investments are optimized for market fluctuation,” she says.
Don’t Pause Contributions
Financial advisor Thatcher Taylor of ProPath Financial also adds that far too many people stop contributing to their investments or their retirement accounts when markets are down. They don’t want to see their new contributions drop in value any further, so they stop contributing and wait to invest until markets turn around.
This is a huge mistake for a few reasons, the most important of which is that down markets provide an exceptional opportunity to buy stocks and other securities when they’re on sale.
“That is when you can buy great assets on the cheap,” says Taylor.
Taylor also adds that retirement can be decades away, and that people are living longer in general.
“You need to think long-term in regards to what the market provides, not overreact in noisy times like right now,” he says.
Focus On What You Can Control
Finally, forget checking your balances every day and spend your time and energy on something that can actually pay off.. Financial advisor Justin Stevens of O’Keefe Stevens Advisory, Inc. says it’s smart for investors to focus on daily activities instead of results any time, but especially right now.
For example, make sure you are saving and investing a large percentage of your gross pay. If you’re not, now would be a great time to look at your monthly income and spending with the goal of finding extra money to invest.
“If you’re saving into your employer-sponsored plan, look at the number of shares you are buying, not the dollar amount,” he says.
Also make sure you have an investment plan in place that you can stick to, he says.
“A good place to start is to figure out exactly how much you will need to retire at a specific date in the future,” he says. “With this target, you can back into the rate of return you need to achieve, based on the amount you are currently saving.”
If you’re looking for a tool that can help, play around with some figures using the compound interest calculator at Investor.gov .
If the rate of return falls between 5-8%, Stevens says there’s probably no need to make changes to your savings plan. If you find out the return you’ll need to reach your goals is higher than that, however, increasing your savings rate during a bear market could be an opportune time to get caught up and on track.
“Regardless of what the market does over the year, the savers and investors who focus on what they can control will fare better than those whose focus is on market results,” says Stevens.
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