Last week’s sudden market decline probably took more than a few investors by surprise.
So perhaps this is a good time to remind everyone that market pullbacks are normal occurrences, taking place about once per year on average. (See our previous article Don’t Turn Market’s Temporary Pullbacks Into Permanent Losses.)
It’s hard not to react emotionally to scary news, but it’s important to stay calm and think rationally. Making impulsive investment decisions based on short-term events can permanently harm your portfolio.
There are several ongoing developments the market needs to digest. Gradually rising interest rates are at the top of that list. Tariffs, tight labor conditions and potential global economic slowing aren’t far behind. Fast-growing tech companies were among the hardest hit in the fall downturn, although all eleven S&P 500 sectors plunged lower.
The Takeaway: Seasoned investors know not to react too quickly when markets get volatile. There’s no real news that justifies these sudden price dislocations, but it’s always prudent to pause for a moment, re-evaluate market conditions, and make course adjustments as necessary. For months, we’ve expected interest rates to climb higher as the economy reverts to “normalcy” after the 2008 financial meltdown. The economy should be strong enough to take these rate hikes in stride.
What may need some adjustment is public expectations that markets go up, up, up without a hiccup or two. That’s just not realistic.
Our strategy for client portfolios? We recommend you stay invested, stay diversified, stick to the allocation, take moderate profits, and control what you can – namely, your spending and your retirement savings level. There is no investment “magic wand” that can salvage your retirement if you spend too much and save too little. That’s why we’re so proud to see our savvy clients keep an eye on spending to ensure a sustainable financial future.
On the investment front, we still like the dynamic technology sector, but this is a good reminder not to chase performance or “put all your eggs in one basket.” Given the volatility, we’ll continue using more hedges and lower risk options to provide portfolio ballast. Our job is to help you reach your long-term goals and make your money last as long as it needs to. That means making intelligent decisions and smart tradeoffs between potential risk and return in a constantly changing market environment.