As we approach the second anniversary of the pandemic that swept the world, the economy continues along its winding path toward normalization. Despite exceeding growth expectations at the end of 2021, this January has proved to be one of the most volatile for traders in recent years.
It’s no wonder that investors’ feathers have been ruffled as they weigh the effects of those looming Fed rate hikes, earnings reports, and rising inflation against the market in the first weeks of the new year. Previously inflated assets have been beaten down as investors jump ship in the uncertainty of the question “What’s to come?”
(Here’s a hint: They shouldn’t jump ship.)
Considering this isn’t the market that everyone saw last year, let us answer those burning questions that might be causing you to panic — and hopefully — calm your mind.
Why has the stock market been crashing?
Last week’s FED policy update laid the foundation for the first benchmark interest rate hike since 2018, while also signaling the eventual end of the central bank’s pandemic fiscal response. Even though the full tightening policy hasn’t kicked in yet, we’ve already felt the dizzying effects on the stock market.
What is a correction?
When the price of a security drops 10% or more from its most recent peak it is considered a correction, as we’ve seen in market dips this past month.
It “corrects” by calming overinflated markets and eventually rebounding prices to their longer-term, healthy trends.
Why do we have corrections?
You’re seeing the market readjust asset valuations in response to the effects of the pandemic including but not limited to inflation, interest rate hikes, supply and labor disruptions, pandemic shutdowns, and Fed money tightening policies.
Although they can hurt portfolios in the short term (Ouch, we felt that too) corrections also create ideal buying opportunities for high-value stocks temporarily sold at discounted prices. It will take some time for the market to recalibrate, so sit tight and be patient.
Should I bail out of my investments?
More often than not, the answer is a resounding no. It’s our natural instinct to feel fear when we see the market go red or see a drop in our portfolio, but know that panic selling only locks in your losses and leaves money on the table. Instead of selling the dip, buy the dip. Formulate a new strategy to take advantage of the market and potentially help your portfolio.
It’s not the time to make an exit strategy; it’s the time to rebalance your portfolio, reassess your risk tolerance, and renew your financial goals.
What should I do next?
Communicate with your financial advisor to make sure you understand the changes they can make to diversify your investments.
Make sure to ask if they see additional buying opportunities that you can take advantage of if you have more cash to invest.
Don’t despair when you see market crashes and economic downturns. The ones who missed buying opportunities from the market crash of 2008 are still feeling the pain.
Those who remain, rebalance, and reinvest will be more profitable in the long run.
If you’re still considering bailing on your investments, ask yourself these questions first:
Have my core reasons for investing changed?
Has the time horizon for my financial goals been altered?
Do I have the skills and knowledge to get back into the market after the downturn?
What can I expect from the next few months?
For the upcoming months, expect more volatility, multiple interest rate hikes, and possible fear-based sell-offs. If you have the patience and discipline to stick with your investment strategy, then you’ll be profiting while others only finalize their losses by pulling out.
The long-term investor knows that the market will recover, and this is just a small bump in the road to long-term success.
How is Prosperity Financial Group preparing for this year’s volatile market?
Here at Prosperity, we stay one step ahead of the curve to make sure your money keeps working for you.
We are committed to continuously formulating new investment strategies, rebalancing your portfolio to hedge against losses, and discovering profitable buying opportunities in any kind of market.
You can also be sure we also stay informed on the latest economic developments. This includes changes to FED monetary policies, FOMC meetings, earnings reports, labor reports, breaking news, and extensive market analysis.
It will be important to see the FED’s next steps in March, how they pace interest rate hikes, and how the economy responds before making any drastic adjustments.
Prosperity Financial Group is dedicated to keeping you informed on the latest market updates and how they affect your investments. We strive to build and maintain life-long relationships with our clients because we know — If It’s Money, It’s Personal™.
We’re prepared for what comes next. Are you?