Investing in uncertain times:
The S&P 500 has logged annual gains in 12 of the last 13 years. Since the housing market collapse of 2008, the market has been on more-or-less a consistent run upward. The one year it did drop? 2018, when it fell a whopping 4.38%.
What does that mean to investors? Behaviorally, the more we experience positive returns in the equities markets, the more we expect to see those returns continue. Likewise, the farther we become removed from a steep market correction, the less we plan to expect another one. We have become somewhat desensitized to the market’s volatility. When the market does finally suffer a correction, it takes us by surprise.
Market corrections are part of the business cycle. Business expands then contracts. Companies flourish, then wilt. Consumers succeed, then suffer. The first part of 2022 has been rife with market-rattling news from a labor shortage to a supply shortage to inflation worries and now a war in eastern Europe. Investors have taken notice and generally fled to whatever they determine a “safer” place. Depending on the investor, that can mean anything from buying shares of more established companies to holding cash.
What does that mean for you?
Bad news happens. We have been through wars, scandals, bubbles, crises, and natural disasters, yet the S&P Composite has continued to rise decade after decade. Those that make money understand that volatility is part of investing in the market. Always try to step back and assess the bigger picture.
If you have a well-diversified portfolio that matches your financial plan you will win the game in the long run. If you are short-sighted or have a poorly laid out investment allocation, you may get lucky from time to time but eventually those flaws will be exposed. Today’s lows or tomorrow’s highs aren’t as meaningful when you look at the long-term potential of compound interest over time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.