As a fiduciary advisor, you might already be able to guess what our take is on current market news: Unless your personal goals have changed, stay the course according to your personal plan.
Still, it never hurts to repeat this steadfast advice during periodic market downturns. After all, we understand that thinking about scary markets isn’t the same as experiencing them. So, what’s going on? Why did U.S. stock prices suddenly drop after such a long, lazy lull, with no obvious calamity to have set off the alarms?
While there are many opinions as to what the catalyst for the current drop was, these opinions do not inform us of what will happen next. Sometimes, market setbacks are over and forgotten in days. 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:
- 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.
- If you instead try to time your optimal market exit and entry points, you’ll have to be correct twice to expect to come out ahead; you must get out and back in at the right times.
- Every trade, whether it works or not, costs real money.
We also know how critical it is to be wary of hyperbolic headlines bearing superlatives such as “the biggest plunge since …” While the numbers may be technically accurate, they are framed to frighten rather than enlighten you, grabbing your attention at the expense of the more boring news on how to simply 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 to 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.