Your financial planner said there’d be days like this, and indeed, market fluctuations remind us of the inherent unpredictability of investing. As we navigate through the current market downturn in August 2024, it’s essential to stay focused and proactive.

What’s Happening Right Now

Why are markets having a bad day/week/quarter? Here’s what we know:

  • Markets are anxious for an interest rate cut as inflation seems to be tamer and the economy might be cooling, but the Fed said they’re preparing, but aren’t ready yet.
  • July jobs numbers were markedly lower than past trends, seeming to indicate a long suspected slowdown in the employment market.
  • Japan has led markets lower with sizable moves in stocks (lower) and the Yen (higher).
  • Everything else – how will the US handle elections? What’s going to happen next in the middle east?
  • Sometimes, you just throw your hands up and say there may not be a reason. US Large Company Stocks as measured by the S&P 500 were up more than 30% from October 2023 lows as of August 2nd. Markets have been unusually smooth recently without volatility for most of this year. It may just be time for stocks to take a breath and sometimes the “reason” can be less specific or obvious.

Now we find ourselves with a bumpier market ride. The S&P 500 was down 8.45% from its peak on 7/15 as of 8/6. What should you do from where we sit today?

Managing Your Mindset in Down Markets

  • Acknowledge Your Emotions: It’s natural to feel anxious or fearful. Verbalizing and acknowledging these emotions can mitigate their impact and help keep clarity.
  • Avoid Prediction Traps: The desire for predictions is strong, but the near-term future of markets is unpredictable. Focus on what you can control.
  • Think Long-Term: Remember, investing is a marathon, not a sprint. For those nearing retirement, view it as a transition point, not an end.
  • Let’s Talk: If you need someone to help to sort out what is happening and how it impacts you, a discussion with your financial planner or investment advisor can help you to maintain perspective.

Investment Moves

  • Stick to Your Investment Process: Sharp market declines can be distressing but remember that your investment strategy was designed to weather these storms. If you have an investment policy statement, review it. Continue to make your retirement contributions, if you were withdrawing retirement funds from appreciated stocks, you may decide to draw from bonds for a while. Whatever you do, don’t go to the drawing board if you have a sound investment process you’re relying on.
  • Consider Opportune Actions: If you’ve neglected to rebalance your portfolio, were overly relying on money markets for your bond positions or have let a concentrated stock position get too large, take the time to review and adjust. NOTE: This does not mean you should try to “time the market” or go to cash. If you do have extra funds to invest, putting them to work during market dips may be helpful. If your accounts lack an investment policy, perhaps now is a good time to revisit and plan.

Financial Planning Strategies

  • Review Your Financial Plan: Your plan is your roadmap. If it’s been a while since your last review, now is a good time to reassess your goals and strategies. A great way to gain perspective is to revisit your probability of success in your financial plan. Plans are built for all kinds of markets, not just all-time highs. It’s helpful to remember this.
  • Emergency Preparedness: Ensure you have adequate emergency funds and cash reserves. Flexibility in financial access is crucial during market lows.
  • Health and Self-Care: Managing stress through exercise, mindfulness, and proper health care keeps you at your decision-making best. Take breaks from the financial news and don’t overly focus on alarmist content. Engage in activities that lift your spirits and promote well-being.

Our investment process and financial plans are designed for times like these. By staying disciplined and focused on our long-term strategies, we can navigate market downturns more effectively. Remember, the most challenging times often present the greatest opportunities for those who can manage their emotions and stick to their plans.

If you’re not working with a financial planner and want to assess your personal situation, the team at Pearl Planning is available to help. You can schedule a call here.

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