Mountain storms are extraordinary, powerful, and frightening. Last week, my wife and I experienced an incredible lightning show in Vail, Colorado. The lightning lit up the sky, and the thunder reverberated through the valley. It was quite the display of nature. However, the sun shone the next day, and the sky was blue, a bluebird day.
The stock market experienced a financial storm last year as the S&P 500 dropped by 19.8%, the steepest decline since 2008. It was a challenging year for large, medium, and small stocks, and there was no place to hide. And investors fled the markets, withdrawing more than $126 billion from mutual funds and ETFs. Investors were searching for shelters to protect themselves from the financial storm. Storms are temporary and eventually pass.
The markets are recovering from last year’s correction, as the three major stock indices are trading in positive territory. Stocks are trading higher this year, but you must endure the storm to benefit from the gains because it’s impossible to time the market. Markets started rebounding last June during the height of the storm, and that’s when investors began withdrawing money from their mutual funds and ETFs. Investors panicked during the darkest hour. By the end of May, investors removed more than $100 billion from funds, and since then, the Nasdaq is up 13.9%, the S&P is up 10.2%, and the Dow Jones is up 7.4%. The market is forward-looking and knew the storm was passing long before investors did. It pays to be patient. Do not panic.
Preparation and planning are the best ways to prepare for a storm. Climbers and hikers carry backpacks with water bottles, headlamps, compasses, jackets, GPS, first aid kits, etc., because they know mountain storms can arrive anytime. The same applies to financial storms; they can come anytime, without warning. Diversify your assets and follow your financial plan. A well-diversified investment portfolio based on your financial plan should survive financial storms and stock market corrections. Storms pass. Markets recover. Time moves on.
Follow your plan, think long-term, invest often, and good things will happen.
After every storm, the sun will smile; for every problem, there is a solution, and the soul’s indefeasible duty is to be of good cheer. ~ William R. Alger
July 24, 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.
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