What to Do When Markets (continue to) Decline
Market volatility has persisted into May leaving many investors to wonder when this will end. If you’re feeling anxious about the markets or declining statement values, you’re certainly not alone. Having been through dozens of corrections – and the ensuing recoveries that followed every single past correction – I thought it may be useful to share a few action items investors can take when markets seem to only be headed down.
- Remember that market declines are regularly occurring events within a healthy, functioning market. I’ve shared data in the past that tells us we usually see a 10% correction at least once a year and a larger correction every few years. Unless you believe this time is different, I would argue that we are likely to see higher highs again, in time. In my view, the current market environment is a lot less uncertain compared to March 2020 when we were faced with a global pandemic – the likes we hadn’t seen in a century. Do you believe the current headwinds are more precarious than what we’ve faced in the past?
- Ignore the doomsday headlines. While you’re at it, ignore forecasters, too. Every time we see market volatility, the news feeds are filled with experts and strategists – some employed by large, respectable firms – suggesting they know what’s coming next. As convincing as they may be, I always wonder why they’re telling us after the market has already declined – where were their words of warning prior to the market decline? Said differently, if they couldn’t call the correction, why trust them with any other call?
- Embrace declines by accumulating more assets at lower prices. For clients who are regularly contributing to their accounts or retirement plans, accelerating those contributions while market prices are depressed is akin to shopping when there’s a big sale. Unless you believe the U.S. equity market won’t recover (which has never happened yet in market history) why wait until prices go back up to invest? Reinvesting dividends and interest can be a great way to automate buying low.
- Remember that hindsight is 20/20. As a result, it’s easy to say we should have seen a decline coming. However, to have avoided this decline one would have needed to be in mostly cash (and thus missed out on the past few years of double-digit gains) or be heavily concentrated in commodities – a very volatile and unloved asset class, at least until recently. Virtually every other asset class is down nearly double-digits on the year as of May 16th.
- Expected future returns, while never guaranteed, are positive. If they weren’t, investment prices would be zero. The lower prices go, the higher the expected returns are, all else held constant (chart source: Dimensional Fund Advisors)
I’ll close with words crafted by the British Ministry of Information in 1939; “Keep Calm and Carry On.”
As always, please do not hesitate to call if you have any questions, concerns, or would like to discuss your personal situation.
Jeff DeLarme, CFA, CFP®
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. DeLarme Wealth Management, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.
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Disclosures: The information in this writing has been prepared from sources believed to be reliable but is not guaranteed by Raymond James Financial Services or DeLarme Wealth Management and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of DeLarme Wealth Management and is not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing in commodities is generally considered speculative because of the significant potential for investment loss, and may not be suitable for all investors. Commodity markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
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