I just wanted to reach out to all of my clients in light of current market and world events.
Just to begin with one positive observation, it looks as if the Covid issue is winding down.
But there are other concerns, such as inflation, rising interest rates, oil prices, and economic slowdown, etc. Of course, the most significant immediate concern is the impact of the Russia/Ukraine turmoil and all of its possible ramifications. All of these factors have contributed to the fact that major stock market indexes are down significantly year-to-date.
Regarding the Russia/Ukraine event, as is often the case in such events, there is an initial shock reaction and sometimes overreaction in the stock market. One reason for this is the adverse psychological impact of the news cycle.
This isn’t to infer that there won’t be real negative impact over the long term. It’s just that no one can really predict or know how all of this will play out and what the longer-term impact will be.
We know that, regardless of the reason, there have been financial market corrections throughout market history and there’s no reason that that won’t be true in the future.
Besides investment selection, an important strategy we’ve employed to help minimize the impact of market volatility is through asset allocation and diversification. That’s the reason my clients aren’t invested in just a few securities nor do they have a large percentage in one asset category.
Of course, these techniques won’t fully insulate you from significant market declines.
That’s the reason I recommend a longer-term view of investing, e.g., the next five years as opposed to the next few months. For instance, recall in 2008 that the S&P 500 stock market index fell 37% and other indexes fell even further. However, over the next two years the S&P increased 26% and 15% respectively.
Also, keep in mind that many of you have investments that provide guaranteed income or that offer a degree of downside protection when the stock market declines.
Let me just state that one of the greatest detriments to financial success is our very own emotions, namely “fear” or “greed.” I think the best approach for what I categorize as your serious money is a good long-term strategy that fits your objectives and risk tolerance, and to stick with it unless your objectives change.
Finally, don’t hesitate to call me if you have concerns and would like to discuss further.