Opportunities In A Down Market

Key Takeaways   

• During uncertain times its best to focus on controlling what you can control. 

• Don't let the current market fluctuations allow your emotions to detail your investment decisions and your financial plan. 

• Down markets create buying opportunities for both working people and retirees through dollar-cost averaging and rebalancing.  

As I write this post, the major market indices have slipped 10% from their recent highs. That means we have technically gone into a “correction.” Most of the angst and hand wringing can be attributed to uncertainty over President Trump’s tariff policy and its impact on the economy and international trade. 

If the proposed tariffs go through, there is a possibility that these higher costs could be passed on to the consumer. While that might cause some inflationary pressure, the higher prices should lead to higher corporate profits and an eventual increase in stock prices. That’s why you want to stay invested and control what you can control. 

No one knows how everything will play out. But the gloom and doom headlines (and the market’s reaction) show we’re a little out of practice with volatility. Sure, 2022 was a bad year for both the stock and bond markets due to fast-rising inflation. But, we haven’t seen such a sharp sell-off and high volatility in the markets since the early days of the pandemic in March 2020.  

It can be scary to see markets drop sharply after several years of everything seemingly fine, but occasional volatility is part of a normal market cycle. For those of who are working full-time, market downturns present an opportunity to continue contributing to your 401(k), deferred compensation plan or other retirement accounts at discounted prices. If you’re putting $1,000 into your retirement account every paycheck, you’re now able to purchase more shares for the same amount of money than you were a few months ago when markets were at their all-time highs. 

A down market is also an opportunity to take cash you’ve had sitting on the sidelines and invest it at discounted prices. Stock prices are basically back to where they were last September. To paraphrase Cullen Roche’s famous quip: “Stocks are the only thing people never buy on sale.”  For retirees, market downturns can be more challenging, as you don't have new income coming from a paycheck or business. But if the markets drop precipitously, it’s an opportunity to rebalance your accounts and consider selling bonds and buying stocks to keep your stock-to-bond ratio in balance.  As Novi clients know, it's important to focus on your long-term investment strategies and not get caught up in short-term market volatility and  pundits trying to instill FUD in you (fear, uncertainty and doubt). We know historically that the market is going to grow 70% to 75% of the time. The current tariff-driven correction is not going to be the end of the world and we’ll get through it. As long as you make the proper decisions, you'll be rewarded for your discipline. Just don’t let your emotions cloud your judgment.  

Here is some historical context to put your mind at ease: 

• Shortly after the pandemic emerged in the U.S. in March of 2020, markets were down by as much as 40%. But things quickly stabilized. By the end of 2020 the S&P 500 had a return of over +17% (dividends reinvested).  

• Going back 10 years (to March 2015), which includes the pandemic of 2020, the inflation-driven bear market of 2022, and the most recent tariff-driven correction, the S&P 500 is still up about 168%. That’s an average annualized return of roughly 10.4% per year. At that rate, your money will double approximately every seven years if you stay invested and stick to your plan. Compounding is your friend if you’re a disciplined investor. 

  
  

 Bottom line: The market doesn’t like uncertainty, and that’s clearly what we have right now with the Administration’s constantly changing guidance about tariffs. It won’t be this way forever as the blustering and posturing eventually settles. Meanwhile, economic fundamentals are still on sound footing. Inflation data keeps improving. Unemployment numbers are still near their 50-year lows. Corporate profits remain generally strong.  

Our advice to clients at times like these is just to focus on controlling what you can control. We can't control what's going on in Washington, but we can control your cash flow and how you invest it, save it and enjoy it. Don't let the current market fluctuations allow your emotions to detail your investment decisions and your financial plan. As with so many upsetting things in life, “this too shall pass.” 

Now is a great time to take advantage of bargains in the financial markets. If you have the capacity to put extra money to work, now is a great time to do so. Study after study has shown that stocks are the best inflation and volatility hedge you can own. And it’s almost impossible to know when to get out of – or back into the markets – without eroding your wealth due to bad timing.  

Conclusion 

Turn off the TV. Don't check the markets every day. Keep your emotions in check and stick to your saving and investment plan. Things will work out. At times like these, working with a skilled fiduciary advisor can be a big help.  

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RYAN A. DUNN, CFP®, is a Wealth Manager at Novi Wealth