Deborah Adeyanju, CFA, Senior Advisor & Impact Strategist
2022 has gotten off to a rocky start to say the least. As of today, the S&P 500 was down by nearly 8% since the start of the year. Meanwhile, the tech-stock heavy Nasdaq was down by about 12%, and the broader Wilshire 5000 Total Stock Market Index was roughly 6% off. What’s going on?
The market dives followed the Fed’s plan to start raising interest rates to bring down inflation. Even though returns have been negative recently, stocks have experienced brief, single-day, rallies during that stretch as each new low prompted investors to rush in to “buy the dip.”
The market’s falling!
Over very long periods, stock markets have consistently risen. Every crash, correction, or dip has been followed by price gains. Investors buying the dip are trying to take advantage of a temporary discount to get into the market.
Sounds reasonable then to buy when prices tumble, right? The problem is market timing generally doesn’t work. The historical trend has been for stock markets to rise, but periods of heightened volatility – drastic moves up and down – are also a feature. And these sudden reversals often happen in close sequence. Investors trying to time the swings tend to buy and sell at exactly the wrong times. Over a multi-decade horizon, missing out on even the 10 best-performing days can mean you miss your investing target, or worse, see negative returns.
What to do when markets fall
First, sit tight. It can be really tempting to do something when markets go haywire. But investing consistently over time is key to meeting your goals. Your portfolio strategy should be just that – long-term and integrated with your overall financial plan – not subject to temporary market swings.
As wealth managers, we’re actively monitoring markets, and our clients’ portfolios for fallout from the themes we outlined in our most recent Commentary including:
- Fed and federal government policy changes;
- companies’ ability to meet high earnings expectations; and
- increased return dispersion across investment categories.
As these trends play out, our preference for some investments over others, or the relative prices we’re willing to pay may shift. But one thing we won’t be doing is jumping in to “buy the dip.”
GRID 202 Partners is an African-American and woman-owned Registered Investment Adviser (RIA) specializing in fee-based, comprehensive financial and investment planning for individuals, couples, businesses and institutions. We serve successful, ambitious professionals and business owners, mission-driven organizations, and households that are committed both to creating wealth for themselves and future generations and to aligning their financial assets with their social impact objectives.