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DO NOT LET 4 MONTHS DERAIL YOUR RETIREMENT

DO NOT LET 4 MONTHS DERAIL YOUR RETIREMENT

May 12, 2022
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It can be difficult to maintain a long-term investment perspective during periods of uncertainty and volatility in the financial markets. With a dramatic downturn in technology stocks, the S&P 500 index had the worst four month start to a calendar year since 1939. The Nasdaq Composite index recorded the worst start to a calendar year in its history going back to 1971.[i]  As an investor, these ominous stock market statistics and various global events can cause you to feel unsettled.

Bonds are losing value. To make matters worse, rapidly increasing interest rates have caused bonds to decrease in value at the same time as the stock market is declining. Bond investments, typically viewed by investors as the more conservative and stable part of their portfolio, also lost ground during the first four months of 2022.

It is easy to see why concerned investors are selling investments. Top of mind for worried investors is the U.S. economy’s health, as measured by the gross domestic product shrinking due to supply-chain constraints, inflation hitting a 40-year high[ii], concerns about the Russian invasion of Ukraine and lingering impacts of the COVID-19 pandemic causing extended lockdowns in China. However, allowing your emotions, instincts, and perceptions to drive your investment decisions can lead to making investment choices at the wrong time that can potentially derail your retirement and financial future.

No one can predict the future. As we look to the future, it is important to understand that no one can predict what will happen tomorrow, or where the financial markets will go from here. Turn off the news networks and ignore the online headlines that try to suggest otherwise. 

Instead, here is some positive news for you to focus on: 

  • Financial markets are efficient. All known and predictably foreseeable information is already reflected in current financial market prices. As soon as breaking news becomes known, the financial markets adjust the value of investments to reflect this new information. For example, current bond prices already priced in the expected future interest rate hikes by the Federal Reserve Board. Therefore, stock and bond prices are already pricing in expectations from the various concerns listed above.

  • Congressional stimulus spending is just starting to be invested. In 2021 Congress passed pandemic stimulus spending of over $3 Trillion, including $1 Trillion for infrastructure projects throughout the country. Many of these projects are just starting. The stimulus spending allocated in 2021 is expected to, and will likely, benefit the economy in 2022 and beyond.

  • The U.S. job market continues to grow. The economy added 428,000 jobs in April making it the 12th straight month of gains above 400,000. The federal unemployment rate remains at 3.6%, almost a 50-year low. Wage growth is slowing but remains robust. Over the past year workers’ average hourly earnings are up 5.5%.[iii]

  • Corporate profits increased. Despite rising costs for materials, labor and transportation, companies are becoming more profitable. In 2021 corporate pre-tax profits grew by 25% making it the most profitable year for non-financial U.S. companies since 1950.[iv]

With the current concerns what should a long-term investor do? 

Attend Hammond Iles Power Hour online investing classes. We believe knowledge is power. An educated investor makes more informed choices. A great way to ease your concerns about the financial markets and your investments is to understand more about what you are invested in and why. In addition, draw confidence in knowing more about how your portfolio is engineered based on Nobel prize-winning, empirically tested academic investing principles.  You can learn about upcoming online and live events on our Facebook page or at hiwealth.com.

  • Add to your investments if possible. Yes, the financial markets could go lower before increasing in value, but you are investing for the long term so you can take advantage of the financial markets being lower than where they started the year. Excess funds sitting in a bank account may not go down in value, however, you lose purchasing power due to inflation. Maintain a comfortable level of emergency savings in a secure high yield savings account to provide yourself with peace of mind. Also consider investing excess savings above the amount in your emergency account in a diversified portfolio at a risk level you are comfortable with.

  • Don’t try to time the markets. Doing so is nearly impossible. It is the length of time you are invested in the markets, not when, that matters. Although staying committed to your investment allocation and continuing to invest when the markets dip may cause concern and stress, it can be healthier for your portfolio and can result in greater accumulated wealth over time.

  • Talk with a financial coach. If you would like to talk with a Hammond Iles Financial Coach about your specific situation please contact our office at (800) 416-1655 or clientcare@hiwealth.com.

  • Have confidence in your diversified portfolio. It is important in uncertain times like these to understand what you are invested in and why. You can take comfort in knowing your globally diversified, academically based investment portfolio allocation is engineered for long-term growth despite short-term challenges like we are experiencing now. Our investment philosophy and management process includes systematic rebalancing that strives to maintain the level of risk that you are comfortable with in your portfolio.

  • Rebalance your portfolio regularly. Advisory accounts invested with Hammond Iles are reviewed and potentially rebalanced at least every 90-days when market performance shifts the portfolio allocation more than 5% in one direction or the other. This non-emotional systematic rebalancing can benefit a portfolio’s long-term growth while maintaining the level of risk you desire.

  • Re-evaluate appreciated investments. You may be holding investments to avoid paying capital gains tax. With a possible recent decrease in market value, is now a good time to sell appreciated investments to reinvest in a more diversified portfolio? Find out by talking with a Financial Coach about your personal situation at (800) 416-1655 or clientcare@hiwealth.com.
    

  • Get ready for the next market crash! The world is fearful right now and your financial future hangs in the balance. Now is not the time to panic! Listen to ep 59 'Preparing for the Next Market Crash' podcast here or watch the video from our monthly online Power Hour investing class here and learn:

• The WORST POSSIBLE things an investor can do now

• What is at risk in these times (hint: it’s not what the media wants you to think)

• The upside of a down market and how you can make informed decisions with the potential to help you build and protect your financial future

• 3 of the BIGGEST Investing mistakes

We encourage you to view the beginning of 2022 as an opportunity to rebalance and purchase new investments at a lower value rather than a cause for concern. Don’t allow four months of poor investment performance to prompt you to take actions with your investment portfolio that can cause negative long-term effects. Stay invested, continue your financial education, and add to your investments if possible.

We are here to help so don't hesitate to contact us at (800) 416-1655 or clientcare@hiwealth.com if you would like to talk with a Financial Coach.


[i]https://www.marketwatch.com/story/a-rough-4-months-for-stocks-s-p-500-at-risk-of-booking-the-worst-start-to-a-year-since-1942-heres-what-pros-say-you-should-do-now-11651250525

[ii]https://www.nytimes.com/2022/04/13/briefing/inflation-forty-year-high-gas-prices.html

[iii]https://www.wsj.com/articles/april-jobs-report-unemployment-rate-2022-11651789328?st=8upg5xep4i50yj7&reflink=desktopwebshare_permalink

[iv]https://www.cbsnews.com/news/inflation-corporate-profits-record/