YOUR BUSINESS AUTHORITY
Springfield, MO
YOUR BUSINESS AUTHORITY
Springfield, MO
While much of 2022 has been a roller coaster ride for the stock market, there’s one clear piece of guidance from local financial advisers to their clients: Stay the course.
Ongoing external pressures, such as 40-year high inflation, the Russia and Ukraine war and ongoing supply chain issues, are contributors to the economic turbulence the U.S. has felt this year in the stock market, said Kenny Gott, president at financial planning firm Piatchek & Associates. The Federal Reserve has raised interest rates six times this year and is set to do so again in December as it attempts to tamp down inflation, according to officials. Those factors also have led to a growing concern of a recession looming in 2023.
“Anytime the Fed says anything, the markets tend to either go up or down a little bit – or a lot, in some cases,” Gott said. “That’s a temporary bump or dip based on the news of the day.”
Gott said client calls of concern about the value of their investments dropping have occasionally come into the office.
“Nobody’s happy when markets drop, and they see their account values lower. We try to prepare clients for that probability,” he said. “When markets are up, they’re great. When they’re down, it’s not fun.”
Dealing with downs
According to financial officials, there’s definitely been more downs than ups among stocks this year, contributing to a bear market, commonly defined as a decline of 20% or more from a recent high point.
The Dow Jones Industrial Average, as of Nov. 2, was down over 11% since the beginning of the year. The S&P 500 declined nearly 20%, and the Nasdaq sunk roughly 30%. Additionally, the stock market drops are taking place amid this year’s ongoing inflation surge, which was up 8.2% in September. The 52-week range for the Dow is 28,660.94 to 36,952.65 – a roughly 30% swing.
The range is not typical, Gott said, as the Dow usually averages 10% growth per year. However, he said there’s really no such thing as a typical year in the stock market.
Peter Lai, a financial adviser for Edward Jones, said clients have reached out in recent months with questions about what, if anything, to do about their investment portfolio.
“The volume for me hasn’t been really overwhelming. I’m very proactive in reaching out to clients,” Lai said, adding he checks in with them to determine if their financial goals or needs have changed since they last visited. “We have a process and strategy to deal with different market scenarios. The ups and downs are just the normal course.”
For Lai, the key with his clients is to spend a lot of time understanding what is important to them on a personal level.
“Each and every client that I help, their goals are different from one to the other,” he said, noting even the common strategy of retirement varies among clients. “Many of us who have been investing have seen these down markets before.
“It’s not the first one and it’s not going to be the last one.”
Leia Huffman, senior managing adviser with FORVIS Private Client, acknowledged it’s been a very volatile year in the stock market. Still, she said her overall message to clients is “not to panic and sell out.”
“While it’s not comfortable to see the markets go down, selling out now and going to cash would mean you’re likely realizing the losses by selling when the market is down,” she said. “Then you have to try to remember when is the right time to get back in the market to be able to make up the money that you may be down. You have to make two right decisions, and that’s really hard to do.”
Like Gott, Huffman points to the long-term performance of the market as a guide to reassure clients. She said it’s a matter of clients riding out the storm and making sure their portfolio is invested in a balance of stocks and bonds that’s right for them and their current life situation.
“For financial planning, it’s really helping clients outline what their goals are and finding a strategy of how to reach those goals despite the ups and downs the market gives us and being able to plan for that,” she said.
Even if predictions of a recession do come to pass, Gott said the volatility of the stock market makes predicting the length of time of any given downturn impossible to predict.
“There’s so many factors at play,” he said. “The planning is what will get you through a recession, not guessing when it’s going to end.”
Concern about a recession is high, according to a recent survey from personal finance website WalletHub. The study, which gauged consumer sentiment on the Fed raising interest rates, noted roughly 8 out of 10 Americans believe the U.S. is headed for a recession. The newest Fed rate hike, announced Nov. 2, will result in people with credit card debt spending an additional $5.1 billion on interest this year alone, according to WalletHub.
Credit card debt is rising at its fastest rate in over 20 years, according to the Federal Reserve Bank of New York. Overall, Americans owe $887 billion on their credit cards, up 13% from a year prior.
Make a plan
According to the Fed, U.S. households accumulated roughly $2.3 trillion in savings in 2020 and through the summer of 2021, aided by stimulus checks from the federal government amid the pandemic. Gott said those who have yet to commit those savings should take time to do so, particularly considering increased recession concerns.
Step one is to make sure you have a sufficient emergency fund. Then pay off any high-interest debts, such as credit cards.
“They’re both important,” he said. “If you have extra cash you’ve saved during the pandemic, now’s a great time to invest as the markets are down. That is, if you can invest and you’re comfortable with the volatility of the stock market.”
Huffman has a tip for those who built up their savings during the pandemic but are hesitant to invest all at once: Putting money in the market gradually may be a better strategy.
“You don’t want to try to time the market because no one is good at that. Really, it’s just a matter of starting because there will always be ‘what ifs’ down the road,” she said. “It’s a matter of getting started and sticking to that plan over the course of time that really helps people be successful.”
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