Friday’s employment report got the weekend off to a bad start, and now most global markets appear to be trying to shake off the effects of a major hangover on Monday.
Add global socio-political conflict in the Middle East and weak earnings among tech and consumer-facing companies into the mix, and you have a full-blown cauldron, as Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, explained in a note Monday. Seemingly invincible tech stocks floundered; Japan had its worst market day in decades after hiking interest rates last week, and U.S. markets saw their worst decline since 2022. In short, there’s a lot going on—perhaps too much for the beleaguered consumer.
Records were broken on Monday, with the CBOE Volatility Index (VIX), known as Wall Street’s “fear gauge,” hitting a two-year high and Japan’s Nikkei 225 index falling 12% in its worst day since 1987. It’s definitely a case of Mondays. But that doesn’t mean investors should freak out, financial advisors say.
“What you’re seeing here is really a lot of noise,” said Douglas Boneparth, president of Bone Fide Wealth in New York City. Luck.
Stand firm, don’t sell
“You don’t want to be reactive, it could very easily backfire,” said Dan Casey, investment advisor and founder of Bridgeriver Advisors. Luck The current market downturn.
It’s natural to feel a little panicky during times of volatility. But that doesn’t mean we should give in to the urge to go to the bank and get our two pennies back, like Mary Poppins. In these times, all you have to do is take a deep breath and step back.
“If you’re worrying about or focusing on things that you have no influence over, are you spending your energy and time wisely? Probably not,” Boneparth said, cautioning investors to instead pay attention to things they can control, such as the media they consume and how their investment portfolio aligns with their financial goals.
Casey said that part of the problem, whether it’s legitimate or not, is that it creates new problems down the road as he listens to the concern. He often tells his clients, “When you make a sale, [a downturn] “So you create a temporary solution. But you create another problem, which is: When do I get back in?” In other words, people who try to time the market (including selling after a stock has fallen) often end up buying it back at a higher price. Sometimes Casey tells a client to split the difference, keeping half the money in the market and withdrawing half.
Casey often tells his clients that every dollar that goes into the stock market “should have a five-year time horizon.” That is, you’re making a long-term investment, and just one day of withdrawal would create “turmoil” and could lead to global chaos if millions of investors panicked at the same time.
Even as recession fears rage, investors should remind themselves that the stock market is not the economy and many consumers are not showing signs of fear. “Spending is still good. Travel is still good… People are out and about,” Casey said. “I don’t see anything that would suggest that the consumer is in a recession. As of right now, everything is still pretty good.”
Sensational headlines about a crash reminiscent of Black Monday don’t make Casey bat an eyelid. “Maybe 20 years ago, this would have scared me,” he said, but with computers and algorithms operating at scale, “sometimes you don’t see small corrections anymore.”
Think about long-term goals
So, what should we do to avoid panicking? Let’s think about the future.
Boneparth notes that the market typically experiences three 5% pullbacks and one 10% pullback in any given year, so the current turmoil isn’t all that uncommon. Approaching chaos from a distance can be useful not only to understand turmoil in the context of regular economic volatility, but also to get a holistic view of what you want as a consumer and investor.
“If you don’t have a plan, this is a great time to consider doing it on your own or working with a financial advisor,” Boneparth adds, explaining that moments like these further emphasize the importance of having a long-term financial strategy. Those who already have a strong cash reserve and a strategy “won’t be too shaken up by a bad batch of headlines here and there,” he says, because those safety nets can provide comfort in times of rampant tension. What’s more, investors with regular contributions, such as 401(k)s, will automatically benefit from market declines through dollar-cost averaging, he says, as sell-offs make stocks cheaper.
When it comes to the stock market, ups and downs are unfortunately part of the game. As Boneparth points out, recessions happen, and anyone who doesn’t account for downturns when making long-term investments is “probably making a mistake.”
That’s why most financial advisors recommend investing in the stock market for the long term. That means the money you’ll need in the next few years (for example, an emergency fund or a down payment on a house you’re putting an offer on) should be in another type of account, such as a savings account, a high-yield savings account, or Treasury bonds.
So what should a strategy look like? Lavina Nagar, president of asset management firm Maya Advisors, gives an example.
“While we can’t control market cycles, we can control how they affect our lives. That’s why we maintain adequate cash buffers to see us through downturns,” he says. “When we’re working, we have 6-12 months of emergency cash to see us through in the event of a job loss. When we retire, we have enough cash so we’re not tied up in our portfolios until the markets recover.”
“When markets go crazy, stop and think – do I need money out of my portfolio? If the answer is no, ride out the volatility.”
It’s important to consider short-term mistakes and long-term goals, Casey says. “Any bucket of money that you have should have a purpose, and the bucket of money in the stock market is long-term growth,” he said. “So stop freaking out and just stay in it.”
Maybe get involved
If you’ve decided to roll the dice and believe the words of your advisors, this could be a surprisingly good time to do so.
“In short, as Warren Buffett says, be greedy when others are fearful. So if a lot of people are selling, maybe it’s time for you to buy,” says Greg Giardino, associate financial advisor at Wealth Enhancement Group. He adds that caution is warranted, both when buying and when selling. “If there are certain stocks that you want to buy, unless the rationale has changed, they’re cheaper now… If you want to buy $10,000, buy $5,000 and wait a day or two and maybe buy the rest.”
With stocks this low, those willing to bet on optimism may have a chance to strike while the iron is hot, but it’s still moving. Boneparth says this moment is an opportunity for some to buy into cheaper stocks if it’s just a market correction. If a long-term investor is looking at, say, a big 10% index decline, “you could see some discounts coming in and you could be in a position to take advantage of that,” he says.