27 May Riding the stock market roller coaster
Up and down rising interest rates, economic changes, and geopolitical conflicts
Hi, it’s your Money Mavens, and this is a surprise to many investors, maybe even yourself…
But the stock market is supposed to go down from time to time.
When you have real people making dynamic decisions about the value of companies run by real people…
And many, if not a vast majority of investing activities are made with emotionally charged decisions…
That can cause the stock market to roll and twist and travel up and down, much like a trillion-dollar-plus rollercoaster.
Unfortunately, that can also lead to more anxiety, uncertainty, and yes, plenty of sleepless nights and far-off stares.
It’s been quite a wild ride for investors so far during these first few months of 2022.
With record-high inflation in the U.S., rising interest rates, economic changes, and geopolitical conflicts, your stomach may be in knots from all the twists and turns.
And it’s likely causing you to have more than a few questions:
- How do we respond right now? Do we wait or do we do something?
- What do we need to know moving forward?
- What do I do with these feelings of uncertainty and questions about what’s happening in the market?
We understand – it’s easy to let the headlines and coffee talk about inflation and economic worries steal the spotlight.
The good news is this current environment may actually help you in the long-run.
History shows us that investors are rewarded for long-term, patient investing.
In fact, we have small mountains of data that show us stock gains can actually add up after significant declines in the stock market.
Data from the FAMA/French Total U.S. Market Research Index spanning from 1926 to today shows that there have been positive returns in U.S. stocks after periods of sharp downturns.
Yes, bad times do happen, and we may be entering one of those times, but from what we’ve seen over and over for investors is that good times outshine bad times.
Perspective is essential and staying invested and focused on the long-term is the best strategy to help put you in the right position to benefit from market recovery.
Now, you may be reading this and thinking, “But, I want to do something now! What can I do now?”
There are a few actions and ideas you can focus on to help you during market volatility, not just now but also any time in the future:
1. Look for Rebalancing Opportunities.
It’s important to touch base with your financial professional to discuss your financial plan. Let them know if there’s any change in your financial situation, needs, or goals and target asset allocation.
It can be important to rebalance during periods of market volatility to ensure your target asset allocation is maintained and your desired risk and return preferences are protected.
2. Be aware of Tax Loss Harvesting Opportunities.
Consider also touching base with your financial professional on any tax loss harvesting opportunities to help manage your overall tax liabilities.
Tax loss harvesting happens when you sell an investment for less than you purchased it (in your after-tax brokerage account – not in a retirement account like an IRA, Roth IRA, or 401(k). And you buy a replacement investment so that those dollars are still invested. This process locks in the loss for tax purposes (but not for investment performance because you invested those dollars in something else) and later you may write off part or all of that loss on your taxes or offset other taxable gains.
3. Remember the Power of the Markets.
To enjoy the benefits of higher expected returns, you as an investor will likely have to accept increased uncertainty.
Sticking to your investment philosophy is critical when it comes to having a rewarding long-term investment experience.
Try tuning out the noise and staying focused on potentially capturing the long-term returns that history shows capital markets provide!
“So, what do I do with all of the butterflies and stomach flips I’m still experiencing?”
It can be emotionally awful to watch your accounts during times like this.
However, this is why the most successful investors learn to not rely on their emotions when it comes to investing.
The stock market has been the greatest generator of individual wealth in human history, so trust in your investment plan.
Take this time as an opportunity to practice patience and build the wisdom of perspective to powerfully navigate these bumpy rides!
To your prosperity,
Your HWM Money Mavens
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