Markets are rebounding. The S&P 500 is up 14% this year, performing much better than in 2022. The popular index has responded to lower inflation numbers and a tamer Federal Reserve. And It does not appear concerned about Russia or China.  

Investors, like warthogs, have short memories and have all but forgotten last year’s troubles and tribulations. Speculators are buying call options and driving the price of Bitcoin higher. The tech-heavy Nasdaq has risen 30% as the Magnificant Seven – Nvidia, Tesla, Meta, Apple, Amazon, Microsoft, and Google soar to all-time highs.

If we extend the time horizon for the S&P 500, the returns look even better.

• 3-Year Return = 45.5%
• 5-Year Return = 62.1%
• 10-Year Return = 171.3%
• 20-Year Return = 348.3%
• 30-Year Return = 877.9%
• 50-Year Return = 4,120%

The moral of the story is: time wins, stay invested!

During the 2022 market correction, we relied on our financial planning models to convince clients to remain invested, stay the course, do not panic. It was a difficult ask, as it is in all down markets, but most clients took our advice. A financial plan is central to our client’s portfolios because it gives us the confidence to advise them better about their financial futures. Last March, we tested our portfolios for a 50% market correction and 5% inflation to see how they would perform if conditions worsened. The exercise furthered our confidence that most accounts could weather the storm, but what about the ones that could not? If an account failed our test, we contacted the client to discuss several scenarios and make the appropriate adjustments. However, we did not expect the market to fall by 50%, and it didn’t.

It is not easy to be patient, especially when your net worth is dropping swiftly, but it’s paramount if you want to be successful as an investor.

Here are a few tips to help you during the next market correction.

• Diversify your assets across stocks, bonds, and cash.
• Build an emergency fund to cover several months of expenses.
• If you’re retiring in the next few years, allocate three years of expenses to US Treasury Bills.
• Create a financial plan. It is a financial GPS.
• Buy the dips.
• Don’t panic. Markets recover.

Enjoy this year’s market run, but always be on guard for a correction. A well-balanced portfolio and financial plan can help you during the market and economic chaos.

Be patient, my friend. Your older self will thank you.

We could never learn to be brave and patient if there were only joy in the world. ~ Helen Keller

June 28, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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 your asset level.

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. Prices and yields are for today only and are subject to change without notice.