The S&P 500 dropped 8.7% in April bringing the index’s return to -12.9% on the year. The Bloomberg US Aggregate Bond Index fell 3.8% during the month. Its performance is -9.5% for the first four months of the year. The Federal Reserve is poised to hike interest rates further. Inflation is a staggering 8.5%. Investor sentiment is at rock bottom.
It’s been a painful year, but in terms of stock market drops, this one has been fairly routine so far. The S&P 500 averages a 14% drawdown during a typical calendar year, very close to where we are today. The yield curve could continue higher, putting further pressure on bond prices. Things could get worse before they get better. For some, fear during a normal market correction is nothing compared to the jealousy and greed felt when we hear about stupid people making big returns chasing casino bets (SPACs, NFTs, fad themes, complex options trading). And boy do we hear about it… when the market is up. Today, everyone is hurting and at least the speculators have gone silent.
Investing is hard and sticking to a sound investment strategy is even harder, both in good times and bad.
People without a plan are not investors. They flit from trade to trade, chasing whatever feels good in the moment. They may score the occasional big win (and tell you all about it!), but more often their portfolio generates panic and regret. Investors who put in the hard work of creating an investment strategy aligned with their financial plan make trades when necessary, even if it feels uncomfortable sometimes.
How do you feel with the S&P 500 down over 10% and pockets of the market like the Nasdaq down by over 20%? Acknowledge how you’re feeling and what actions you want to make. Do those moves agree with your financial plan? Would they have helped if you had made those moves during the last correction (only two years ago!)? Probably not. World events, economic data, and the investing climate will change, but the next time there is a drawdown you will probably feel very much like you do today.
Maybe you are comfortable with the current discomfort. Maybe you’re ahead of plan and it’s time to take some risk off the table. Some investors may be tempted to buy the dip. However you’re feeling, make sure your financial plan works in concert with your temperament. After all, this isn’t the last time a market correction will occur.