On Friday, June 10, 2022, the Bureau of Labor Statistics (BLS) published the most recent estimate of headline inflation, which hit a 30-year high of 8.6% on an annualized basis. Every day since then in the market has been a bit like whiplash. At the close a week later, the S&P 500 is down just over 23% from the high on January 3.
First, the bad news: While I still don’t have a crystal ball, it is quite likely the news will be bad for a while longer, and this case of annoying whiplash will continue. There is no way of telling where we are in this cycle, but history and the data show that markets can fall further from where they are today. All investing involves a degree of risk, and some of these unknowns are the manifestation of that risk.
Next, the good news: history has shown us that this painful period of time will eventually pass and that those investors who stay the course and take a long-term view will ultimately be rewarded.
But that’s the hard part, isn’t it, to take the long-term view? It is hard to think rationally about the “long term” when your portfolio (and your mood) suffer from whiplash. And yet, that is just what I would suggest is the best thing for you to do.
I started working as a financial advisor in 2010. It was almost exactly one year after what turned out to be the market bottom in the “great financial crisis” or “great recession.” I was haunted for years by the ghosts of that period of time. I would meet people, potential clients, who had bailed out of the markets, at or near the bottom, never to recover. Some of them spent years in cash. They were looking for a way to recoup those losses. But in reality, it was not the losses they wanted to recoup. It was the opportunity cost they most wanted and needed; it was the time spent out of the market in the recovery that followed. They capitulated to the whiplash. It became my mission to help other people avoid the same mistake.
If you’re suffering from whiplash, I will encourage you to think about your future self. Imagine yourself ten years in the future. Will you be worried about the market volatility and potential recession of 2022? Studies show that imagining our future selves can positively impact our financial decisions. If that doesn’t work, try focusing on things you can control today: turn off the talking heads on TV (keep in mind they are selling ads, not sound financial advice), watch your spending over the next year, and do something that you find relaxing and enjoyable. For me, I read constantly, my family has delayed some major purchases, and I go for a long walk with my wife and our dog almost every night.
You can do this!
Disclosures: Context Wealth, nor any of its members, are tax accountants and do not provide tax advice. For tax advice, you should consult your tax professional. Investment advisory services are offered through Mutual Advisors LLC DBA Context Wealth, an SEC registered investment adviser.