Better-than-expected inflation developments last week helped stocks rise, Ameriprise Financial chief market strategist Anthony Saglimbene noted in his latest market outlook report for the year.
Year-on-year inflation hit 7.1% in November, down slightly from 7.7% the previous month. Could this be the start of better returns, I dared to hope, as my retirement account grew?
The Federal Reserve, as expected, raised its benchmark interest rate, adding that rate hikes to fight inflation would continue through 2023. Then weaker-than-expected retail sales in November and l Weakening manufacturing and services activity weighed on investor confidence, sending the stock market falling again.
“Equities may have even more recalibration to do in the near term, which could keep volatility high going into 2023,” Saglimbene said.
I regularly consult with a group of financial experts to help you – and me – put things into long-term perspective. I went back and revisited what they said at the start of the year as the stock market delivered deep declines. Their advice has not changed.
Here’s what to do if you’re feeling uneasy about the recent market turmoil.
· You are a young investor. Time is on your side. “If you’re a long way from retirement, don’t worry,” said Dan Egan, managing director of behavioral finance and investing for Betterment, a digital investment consultancy. “Focus on what can help you save more effectively and keep pouring money into tax-advantaged accounts or a 401(k) matching account.”
Keep the market buying average, recommended Ernest Burley, certified financial planner and owner of Maryland-based Burley Insurance and Financial Services.
With cost averaging, you regularly invest a fixed amount, regardless of the price of the investment. When the market is down and you continue to invest, you buy at lower prices.
“Don’t let short-term volatility hijack your focus and strategy to achieve long-term gains,” Burley said.
If you’re young and won’t be using your retirement plans for a long time, keep investing aggressively, said Carolyn McClanahan, a certified financial planner who founded Jacksonville, Fla.-based Life Planning Partners.
Now is the time to add to your retirement account, even if the market is down, McClanahan said.
But to avoid the temptation to tap into that money, make sure you have a savings fund for emergencies, as well as house and car purchases, she said.
· You are 15 or older until you retire. Stop looking at the daily fluctuations of the markets, which will only add to your anxiety.
As with seasickness, Egan said, “find a more stable fixed point and pay attention to that.”
Not bailing out the stock market, said Greg McBride, chief financial analyst for The bank rate.
“The market will eventually bounce back, and you want to be on the train, not on the platform, when it leaves the station,” McBride said. “A broad stock index fund is the way to go because it minimizes your costs, and most investors fail to beat the market anyway.”
Look into areas that reduce risk in your portfolio, Saglimbene said, including high-quality stocks and bonds, as well as income-generating investments.
And McClanahan said “the key to successful investing is knowing how much risk you can afford to take and committing to holding assets you don’t need for a long time invested in the stock market through thick and thin.”
· You are a few years away from retirement. If you’re worried about having enough income when you retire, consider delaying your retirement date if possible.
“If you’re about to retire and the markets are down, it might be worth working a few extra years for the markets to recover,” Egan said. “Retiring when markets are down can reduce the income you have available.”
Egan pointed out that working longer has a triple benefit. You get more savings. You have fewer years to cover. Your wallet has time to recover.
Now is the time to build an emergency fund so that if you retire and the stock market plunges, you can tap into that money until things stabilize.
“If you’re about to cut back on work, you should invest less aggressively,” McClanahan said. “Make sure you understand how much savings you need to be able to leave work.”
· you are retired. You should review the specific holdings in your investment portfolios.
Choosing value-based strategies, dividend-paying stocks and grouping approaches can help you navigate multiple market scenarios, Saglimbene said.
In the case of using the tranched approach, “a short-term tranche of cash and high-quality fixed-income securities can help you meet day-to-day expenses when markets are down, while your longer-term tranche can remain invested in both bull and bear markets,” he said.
Whatever moves you make, take the time to think about the consequences.
Like I wrote At the start of 2022, following the stock market’s daily dips will only make you sick or question you – emotions that will likely lead to long-term losses.