First of all, the sky is not falling! Yes, we have some real bumps in the road for our economy and the stock market, but as the TIME magazine covers show, we have been here before and will be here again. What is happening in the stock markets is what is known as a “correction” and it is totally normal. Stocks can and do drop 20% in a single year, and can drop even more.
If you’re DIYing your investments, this can be a scary time and possibly your first real downturn since you’ve started investing. If you’re feeling like you won’t be able to reach goals you set for yourself because of this downturn, then that is a good indication that you were overly aggressive in your investment allocation for your timeframe. It’s a common mistake when markets are on an upswing. People figure the more, the better and that works as long as markets continue to go up. The thing is that markets do and will go down, which is what needs to be factored into any investment strategy before the downturn occurs.
What we are seeing is a more dramatic correction of tech or “growth” stocks which is also in keeping with long-term evidence that we base our investment strategy on which show that value stocks outperform growth stocks over time.
If you’ve been a reader of the newsletter or a client of mine for long enough, you’re probably well aware of the story I tell about downturns, which is that I started my first job in financial planning at a firm in the Summer of 2008, right before the collapse of Lehman. I know downturns well and have built the investment management side of the business around being ready for them, not trying to avoid them in the strategy. I also prepare clients every year during our Annual Investment Reviews that this kind of downturn can happen at any time, even when we are reviewing a year that posted double digit gains and everyone’s happy with investment performance.
When a downturn does come, and they always do because markets are cyclical, we don’t need to change a thing, because that is part of the plan from the beginning.
I’m thinking of you all and your portfolios – hang in there! -Kristen Euretig, CFP®