I grew up playing hide and seek. I lived near a park, and sometimes the game involved dozens of kids trying to find spots to hide. If you were lucky enough to get the best location, you could stay hidden for a long time as the other kids struggled to find you. A few kids would get frustrated, stop looking, and move on to something else, abandoning the game.
Stocks are struggling, and some investors are ready to give up. The Dow, S&P 500, and NASDAQ are trading in negative territory this year, and safe havens are not fairing much better. Bloomberg’s US Aggregate Bond Index is underwater. Cash balances are losing ground to inflation, and real estate and international markets are falling. It’s frustrating because nothing is working, and finding investments that are doing well is challenging. However, we continue to seek answers.
How should you approach your financial future as stocks and bonds continue to fall?
- Follow your financial plan. A plan can guide you through challenging times.
- Review your emergency fund. A recommended amount for an emergency fund is six months of expenses. If you spend $10,000 per month, your balance should be $60,000.
- Review your time horizon. If you need money in one year or less, keep it in cash, do not buy stocks. If your time horizon is five years or more, buy stocks.
- Diversify your portfolio. Though most asset classes are down for the year, it’s rare. A balanced portfolio of stocks, bonds, and cash can limit your downside over time.
- Think long-term. The S&P 500 has been up 233% over the past ten years, and for the past fifty years, it’s climbed 4,160%. Of course, it does not always go up, but stocks win in the end.
- Be patient. Stocks have always recovered, but it might not happen right away. The S&P 500 fell 27% in March 2020 but has rebounded 83% from the low.
- Reduce your stock exposure. If the stock market keeps you up at night, reduce your stock exposure. If you lower your stock allocation from 60% to 50%, your risk could drop 12%.[1]
- Buy stocks. If your risk tolerance is high and you have a long-term time horizon buy stocks or funds when they are low, so you have the opportunity to sell them when they are higher.
It’s not fun and games when stocks drop, so be patient, follow your plan and think long-term.
Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. ~ Matthew 7:7
February 17, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
[1] Riskalyze