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Staying Upbeat In A Down Market

| November 20, 2023

Investors know that the stock market moves in cycles, but few are comfortable when the cycle takes stock prices lower. And since late August, the cycle has been decidedly lower.

If you’re looking for reasons to worry, you don’t have to look for long:

The trend is not a friend: In late August, the S&P 500 was approaching 4,600. As November approaches, it’s down roughly 10% from that 2023 high.1,2

Oil prices: Oil prices have been trending higher since late June, and some fear the price will continue to climb. Higher oil tends to be inflationary.1

Bond yields: The 10-year treasury has been flirting with a 5% yield for much of October. When bond interest rates move higher, stock prices can move lower.1,2

Tensions in the Middle East: The daily headlines are upsetting and frightening.

Fed Watch: The Fed is giving mixed signals about interest rates in its fight against inflation. Some Fed presidents believe rates are high enough, but Fed Chair Powell is not so certain.3,4

Volatility picks up: The CBOE Volatility Index has been hovering around 20 since late October. Higher volatility tests the mettle of the most seasoned investor.1

During these periods, it’s frustrating to be an investor. But remember, when the market trends lower, stock prices will reset at new price levels. As the market moves through this process, it may be best to avoid watching the day-to-day price action if it’s causing you to question your overall investment strategy.

Analyzing Your Investment Strategy

Diversification, patience, and consistency are the key components when reviewing your investment strategy. Reviewing your investment strategy through scenario-based financial planning provides the guidance and clarity needed to make a more informed decision.

Diversification. “Don’t put all your eggs in one basket” has some application to investing. Over time, certain asset classes may perform better than others. If your assets are mostly held in one kind of investment, you could find yourself under a bit of pressure if that asset class experiences some volatility. 

Patience. For Impatient investors, focusing on the day-to-day doings of the financial markets can lead to investment decisions based on emotions or biases. A patient investor knows that markets have periods of fluctuation and has an investment strategy that fits their investment profile. Understanding how your asset allocation fits your investment profile is the key to staying patient in turbulent times and avoiding making costly, short-sighted, mistakes.

Consistency. The foundation of every disciplined investor is built on consistency. Consistency in investing requires a behavioral commitment to your investment strategy paired with predetermined periodic contributions.

Vanguard recently created the Investment Advisory Research Center, to provide advisors with insights, resources, and best practices around managing investment emotions and expectations. The Vanguard Investment Advisory Research Center created a short, compelling video that demonstrates how failing to remain invested during certain selected periods of significant underperformance might hypothetically have cost investors over the long run.

That said, research shows that staying invested is difficult: Most investors have not simply shrugged off down markets, or bought into them in order to rebalance their portfolios.

 Vanguard Video

Decision-Making with Scenario-based Financial Planning

It is easy to grasp the concepts of diversification, patience, and consistency but implementation can add a layer of complexity. Utilizing a scenario-based financial plan adds clarity to your decision-making and investment strategy.

At RMR, we create financial plans with three primary objectives; Organize, Educate, and Guide. A scenario-based financial plan that addresses your investment strategy can guide you on the path to improving your chances of a safe and secure retirement. Our process helps you make a more educated decision when selecting what investment strategy best fits your risk profile. More information decisions backed by an understanding of your investment strategy help clients to become patent investors during turbulent times.

Reach out to our team if you are interested in creating your financial plan or want to learn more about our pricing options.

  1., October 27, 2023
    2. The S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
    3., August 31, 2023. “Fed’s Bostic says U.S. interest rates are high enough.”
    4., October 19, 2023. “Fed Chair Powell: Slower economic growth may be needed to conquer stubbornly high inflation.”

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to credit, interest rate, and inflation risk.

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.