By Ed McClure, CFP®, PPC®
It’s no surprise that the words inflation, volatility, and recession have been so pervasive lately. Inflation has been slowing down since December 2022, but is still a ways away from the Fed’s target rate of 2%. It’s clear that economists are expecting a recession to hit in 2023, which is likely to lead to increased stock market volatility.
It’s understandable to feel concerned about your investments during times of stock market volatility. At the same time, it’s imperative to remember to stay focused without making any rash decisions. Doing research, maintaining a long-term perspective, and not allowing your emotions to take control of your decisions can support you in making the best decisions for your portfolio. Read on for tips on how to keep a level head during these times to avoid any financial mistakes.
Stay Calm
At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Declines in the S&P 500 Index are actually fairly regular events. In fact, over the last 42 years, intra-year declines have averaged 14% as illustrated by the graph below:
Ride Out the Uncertainty Storm
It’s important to remember that markets dislike uncertainty. Currently, there is a lot of uncertainty regarding continued inflation, interest rate hikes, and ongoing recession fears.
With so much uncertainty, volatility right now is extreme. In January 2022, the VIX (the market volatility index) hit the highest level since 2020. As more information has come out about the Fed’s response to inflation and other factors affecting the market, uncertainty has decreased and the VIX has come back down to 19.2 as of January 24, 2023. As things continue to develop, it is likely that day-to-day market fluctuations will decrease.
Play Dead
There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. We don’t know yet whether the coronavirus fears will translate into an official correction, but the risk always exists.
Market volatility has increased in recent years and the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.
Remember That Your Portfolio Is Diversified
Fears about inflation, volatility, and market declines are stressful. However, it is important to keep in mind that while the stock market is down, your portfolio is made up of stocks, bonds, and other assets that are designed to work together to decrease overall losses. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. If you have questions about your portfolio, get in touch with our office.
Review Your 401(k) and Other Accounts
Now is a good time to take a look at all of your investment accounts, including your business’s 401(k) to make sure it is well diversified. If you have not rebalanced your other retirement vehicles and accounts in the last year, get in touch with our office and we’ll take a look and offer recommendations to help reduce any potential losses.
Speak With Your Advisor
Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party. At McClure Wealth Management, we understand that the markets can be overwhelming during volatile times and we strive to help people make decisions that are suitable for their current needs and long-term goals. Having a conversation with a financial advisor can be a great resource to gain some clarity and reassurance. If you have questions give me a call at (760) 607-0611 or email [email protected] to set up a consultation.
About Ed
Ed McClure is a CERTIFIED FINANCIAL PLANNER™ practitioner, Professional Plan Consultant® (PPC®), and founder of McClure Wealth Management. With over 25 years of experience, Ed works with business owners who want to maximize their retirement plan benefits, businesses that need help setting up and managing a 401(k) for their employees, and families who want guidance while planning their futures. He is known for simplifying complicated and intimidating topics and making wealth management concepts easy for others to remember and understand.
Ed has established himself as a trusted resource for business owners and individuals, and his mission is to help his clients achieve the financial independence and well-being they deserve so they can give their time and energy to the people and things they love. He has a bachelor’s degree in finance from the University of Illinois. In his spare time, Ed conducts financial workshops for the Just In Time for Foster Youth organization, which helps equip young men and women as they come out of the foster care system. He also loves to travel and spend time with his favorite people. To learn more about Ed, connect with him on LinkedIn.