By: Fran Toler, MSFS

2022 has been a challenging year for investors – I have spoken to dozens of clients each week about the market downturn, and whether anything needs to be done in their investment accounts. Every downturn is distressing – uncertainty and unpredictability are no fun – and downturns generally correlate with economic concerns, heightening the worry. What we KNOW is that you can manage a market downturn to your long-term advantage, or you can let the worry lead you into a harmful action.

Why is the market down now?

From January 2020 to December 2021 we saw BIG stock market increases (I’m just ignoring the March 2020 COVID downturn right now) – the S&P 500 was up over 45% over that two year period! The Federal response to the COVID pandemic was swift and large, with an unprecedented amount of money poured into the economy. That money needed to go somewhere, and a lot of it went into the stock market. Additionally, bond values rose during this time period because interest rates were slashed to stimulate the economy. So most people enjoyed very nice investment account returns over this two year period – happy days!

To some degree, the losses now (writing in July 2022) are an expected reversion of those good times. Cycles are normal in investment markets, but they are accompanied with enough worrying news that they can feel like a catastrophe rather than a seasonal up and down. This is especially true when the market cycle presents a new situation, and the news reporting tries to solicit views by using emotional language.

So what is unusual this time? Stock losses are about 20-25% so far this year (which is not an unusual downturn) and wiped out about half the gains of the last 2 years. Downturns in the bond market are the real news – with losses running about 10% so far in 2022, we are looking at an unusual downturn. For the first time in about 100 years, stock and bonds are both down 10% or more at the same time.

Bonds have lost value as a result of interest rates rising from very low up to a more normal rate, and in line with these rising rates, inflation has spiked. Bond losses are normal when interest rates rise, but it is upsetting nonetheless. Hearing about inflation and economic uncertainty make people nervous, which is heightened by popular reporting that heightens the fear element.

What can we do?

Those of you who have worked with me for many years will not be surprised by this advice (and hopefully it mirrors most of the popular advice out there) – do NOT make any investment changes in the middle of a downturn! Chances are excellent that you will cause damage to your portfolio, and instead of avoiding the losses (what you hope you are doing), you will accelerate the losses.

Why is this? Historically, when the market recovers, it does so rapidly, and without any kind of announcement. Typically, the recovery begins when the bad news still seems quite bad, and fear may be at the highest point. The only way to capture the upward market movement is to STAY INVESTED. If you aren’t convinced by this short directive, you should reach out and schedule with our office right away, whether you are a client or not. If you know someone who is trying to decide what to do, please feel free to forward them this message—we would be happy to meet and discuss.

If you already did the bad thing – changed your 401k allocation to a much more conservative option while the market was down – it’s not too late to change it back. If you would like someone to talk to, we are here for you.

Long-term investing requires 3 things:

  • Patience
  • Discipline
  • Optimism

Smarts, Luck and Timing are not on that list!! Instead, you need a good, rational plan that is based on knowing you have a number of years to let your investments grow. And then you let your accounts follow the ups and downs without your interference.

At Toler Financial Group, we are here to support, educate and guide you in making the tough financial decisions.

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