How To Stay Invested, Even During Stormy Markets

Posted on February 3, 2022 at 12:24 PM PST by

The last few years in the stock market have been a weird and wild ride, for sure.

There seemed to be no end to the rise of so-called growth stocks, then the pandemic hit and everything fell, then stocks recovered and went even higher still.

Leaving aside the COVID-19 swoon for a moment, a lot of people saving for retirement would not be blamed for thinking that the stock market elevator has only one button, marked “up.”

That kind of steady market higher for stocks creates a feeling of complacency that’s hard to shake. If you’re invested, things couldn’t be better. If you’re not, it feels like you missed a once-in-a-lifetime ride.

The truth is more complicated, as the recent volatility of the markets has shown.

If you’ve been an investor for longer than just the past few years, you’ve seen this movie before. The credit crisis, the dot-com crash, 1987 — stocks have had dark days before, and they will again.

And, while some indexes are in what’s called “correction territory,” down at least 10%, and some individual stocks have taken a drubbing, there’s hope.

For one, many shares that were out of favor during the growth-stock bonanza are set to benefit. While some investors will seek the safety of cash, many will not. Instead, they are likely to buy more tried-and-true names.

Secondly, while it seems likely that the Federal Reserve will slow the flow of cheap credit into the economy, hoping to stifle inflation, it is very much aware of the risk of tamping down too hard, too fast.

Patient investors

Which is a long way of saying the choice is not binary. There are other assets to own, such as bonds, and other ways to reduce risk without bailing out completely.

The more patient investor, and much of the money invested by big institutions, is likely to go bargain-hunting in the chaos around growth stocks, shoring up equities holdings overall despite the drama.

Secondly, the Fed has been telegraphing the likelihood of a change in interest rate policy for many months. The latest market storm comes from investors trying to position for that reality, not from people leaving the market forever.

In the end, what would you prefer? A sudden disaster that results in a widespread panic, or a slow-moving policy shift that gives you plenty of time to react and plan?

Yes, there could be bad news any minute from any direction, and that makes investing a bit more nerve-wracking. But that’s always true.

Over time, stock investors take in new information and adjust. The ripples from that ongoing process create what we call volatility.

Sure, stocks might suddenly feel less secure than a few months ago. But over longer investment time frames they are no more or less secure now than a year ago or a year from today.

What’s changed, really, is how you feel about it, and how you feel at any given moment is no way to make investment choices. Instead, look at the data and plan your moves accordingly.

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