Volatile Markets & The Importance Of Discipline
We’ve always emphasized the importance of how investing in your employer sponsored retirement plan is for the long term. Recent examples of increased market volatility should help reinforce that message.
Example One: January 20, markets rose solidly throughout the day, with the Nasdaq, best-known for technology stocks, up nearly 2% at its highest point. However, the gains were all removed during a period of late selling.
Example Two: Just two business days later, on January 24, the situation was reverse. The Standard & Poor’s 500 Index of the largest U.S. companies was down by as much as 4% yet finished in positive territory after a late-day surge.
Examples like this highlight that for long-term investors, not paying attention to the day-to-day can be a wise strategy.
More Volatility Ahead?
It’s not hard to imagine more volatility ahead, along with the potential for losses in a stock market that low interest rates have fueled. It may not be possible to avoid the risks associated with the two biggest factors affecting the markets: accelerating inflation and an ongoing pandemic.
Given a high likelihood of increase volatility and potential market corrections maintaining an educated understanding that markets have always had volatility as well as both peaks and valleys will be important for all investors. Investors should also keep sight of that over time these inevitable corrections have given way to higher peaks.
Sources: Vanguard calculations, using data from Refinitiv DataStream through January 21, 2022. Data accessed on January 24, 2022.Notes: Intraday volatility is calculated as the daily range of trading prices ([high-low]/opening price) for the S&P 500 Index. Periods of extended volatility above historical averages have at times resulted in sharp losses during the period, as shown. The index value has also risen during periods of extended high volatility.
Embracing Balance And Discipline
Market Outlooks for 2022 remain guarded, though not bearish.
Long-term equity return outlooks will be influenced by how policymakers remove monetary support that had been required to withstand the early stages of the COVID-19 pandemic.
Fixed income is more optimistic, especially considering the difficult situation, although interest rates remain historically low.
Policymakers face a balancing act in the months ahead, one that could carry significant implications for economic growth, inflation, and investment returns. While investors may find their discipline challenged by markets that have approached or already entered corrections or falls of 10% or more from recent highs.
Our message for retirement investors: Maintain perspective, tune out the day-to-day noise that can lead to impulsive decisions, and if you know that is not an option for yourself it may be time to reevaluate your allocation and to better align it with your risk tolerance.
As always, we understand every situation may be different and you may have specific questions about your retirement investments or savings strategies. If you would like advice on either of these subjects, please email us at info@arcwood.com to set up a free one-on-one retirement review meeting.
Advisory Services through Arcwood Financial LLC. a registered Investment Advisory Firm. Arcwood Financial LLC., Arcwood Benefits Consulting, Inc. and Arcwood HR, LLC (dba Arcwood) are independent companies. Arcwood does not offer legal, tax or compliance advice. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
This content was created by Arcwood Financial and distributed to their plan sponsor clients for use with their plan populations. Any distribution to other groups or use without a client/advisor relationship is prohibited.
