You may already be able to guess what our take is on the current market news: Unless your personal goals have changed, stay the course according to your plan.
Still, it never hurts to repeat this advice during periodic market pullbacks. We understand that thinking about pullbacks in markets is not the same as actually experiencing them.
So, what’s going on? Why did stock prices suddenly drop after such a long period of positive returns?
It is hard to know the exact answer. We know that interest rates are up. Inflation fears persist. Perhaps the markets broke and the computers took over for a couple of minutes. But we also know that most financial data are positive as well. Unemployment is low. Earnings continue to be strong. GDP expectations from the Fed continue to rise.
Sometimes, market setbacks are over and forgotten within days. At other times, they more sorely test our resolve with their length and severity. We can’t yet know how current events will play out, but we do know this:
1. Capital markets have exhibited an upward trajectory over the long-term, yielding positive, inflation-beating returns to those who have stayed put for the ride.
2. If instead you try to time your optimal market exit and entry points, you will have to be correct twice to expect to come out ahead; you must get out and get back in at the right times.
Also, be wary of hyperbolic headlines bearing superlatives such as “the biggest plunge since.…” While technically the numbers may be accurate, they are framed to frighten rather than enlighten you, grabbing your attention at the expense of the more boring news about simply how to remain a successful, long-term investor.
Instead of fretting over meaningless milestones or trying to second-guess what U.S. economics might do to stocks, bonds, and inflation, we believe the more important point is this: Market corrections are normal–and essential–for generating expected long-term returns. In fact, periodic setbacks ranging from mild to severe are more “normal” than the record-breaking S&P 500 run-up we’ve been experiencing lately.
In short, those who stay the course will be rewarded. However, if your nerves are getting the better of you, we hope you will be in touch with us first.