Financial Strategies that Can Succeed in Any Economic Environment
February 23, 2022
Katie Bruno, CFP®, CDFA™
You don’t have to look far to find a headline about ongoing volatility in the stock market.
Equities have dropped in the most recent weeks over the potential invasion of Ukraine by Russia and over fears of inflation being a bigger problem than originally let on by the Federal Reserve. It’s hard to predict what will happen in the near future. Several key data points suggest that our economy is still in good health while others are cautionary.
The reality is that market declines are a regular occurrence and should be presented as an opportunity for many investors. Regardless of what the next few months uncovers, here are financial strategies that typically sustain through any market or economic condition.
Diversification
Regardless of your goal, your time horizon, or your risk tolerance, a diversified portfolio is the foundation of many smart investment strategies. There’s no crystal ball that can predict how well a company or sector will perform from one year to the next. To diversify your portfolio means to spread your investments around so that your exposure is not limited to any one type of asset. This reduces your reliance on one single stock or investment to perform well in order to achieve success. The goal of diversification is not to maximize your performance returns but to limit the impact of market volatility on your portfolio.
Start Investing As Soon As Possible
When it comes to investing, the value of time is one thing you do not want to disregard. Time is a powerful component in building wealth. Investors who may not be able to save large amounts of money can still build wealth by reaping the benefits of compound interest over time. All too often, individuals are sitting on cash waiting for a “better time” to get in the market. Even badly timed stock market investments can be much better than no stock market investments at all. It’s nearly impossible to accurately identify market bottoms on a regular basis. The best action that a long-term investor can take is to determine how much exposure to the stock market is appropriate for you and then start investing, regardless of the current level of the stock market.
Take advice from Billionaire investor Warren Buffett, who famously said “Someone is sitting in the shade today because someone planted a tree a long time ago.” Even if starting with a small amount, it is better than doing nothing. Start with an amount that you know you are comfortable with and periodically review your plan and increase the amount you save if possible.
Evaluate Your Priorities
There is no better time than now to reassess your financial plan and investment strategy than during a period of uncertainty. This does not mean abandoning your current plan but it may involve postponing certain goals to a more favorable time. For example, if you had planned to purchase a new vehicle outright with cash from liquidating securities in your portfolio. It may be beneficial to finance the purchase at a low-interest rate and make monthly payments rather than taking a large withdrawal during a market decline. You can then pay off the vehicle when your portfolio recovers.
Don’t Try to Time the Market
A financial crunch can cause a very negative sentiment in the market. This will lead to people pulling out investments. While that seems like the most considered choice, it is not the best one. If you had invested in the stock market for the 20 years between 1999 and 2018, your money would have nearly tripled. But if instead you had traded in and out, and had missed the ten best stock market days — which you couldn’t have predicted — you would have cut that growth in half.1
We do not know when the market is going to bottom out and neither do you. Just because something has dropped significantly does not mean that it cannot drop more or that it’s going to quickly recover. Emotions can lead to making irrational decisions. When you become fearful, you naturally begin to question what you should do.
Now, is a Time to Lean on Your Financial Advisor
Lastly, lean on your financial advisor if you need to, that is what we are here for. We are all human and seeing the ups and downs on our monthly statement can be an emotional rollercoaster. If you have questions, concerns or would like to discuss your investment strategy, please do not hesitate to contact us. We look forward to and enjoy talking to our clients.
By Katie Bruno, CFP®, CDFA®
Morey & Quinn Wealth Partners
Raymond James® LIFE WELL PLANNED.
Phone: 402.502.9900
Toll Free: 877.541.6593
11225 Davenport St, Suite 109
Omaha, NE 68154
Start Your Conversation Today »
1 https://www.cnbc.com/2020/02/28/heres-what-can-happen-if-you-flee-the-stock-market-for-cash.html
Any opinions are those of Katie Bruno, CFP®, CDFA®, MIMFA, and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.
Additional Blog Posts
« Omi What!? Growth vs. Value Investing »