As any of you who have looked at your retirement accounts recently are well aware, the first half of 2022 has been very bad for market performance. In fact, 2022 is the third worst first half of any year in US stock market history. (Only 1932 and 1940 were worse)
None of us like to see the value of stocks and bonds fall because as they go down so do our account balances. There is flip side to this coin however. When stock prices are lower, you can buy more shares for less money. Then, as they hopefully regain their value your accounts grow even more.
The old adage of buying low and selling high requires lower prices to start with. But how do you have the cash available to buy low if all of your assets are already invested? Firms like ours believe that by actively making changes to the accounts we manage, which often includes going to larger portions of cash during volatile times like these, we can not only preserve our client account balances from much of these losses, but just as importantly, gives us the ability to have cash available to potentially buy back these investments at lower prices when the markets start to recover.
At the end of the halfway mark for 2022 the S&P is down roughly 20% for the year. That means for many stocks, you can buy about 20% more shares, for the same amount of money, as you could 6 months ago.
Of course, the million-dollar question is, should you buy now or wait to see if prices drop further? I wish I had a crystal ball and could give a definitive answer on that, but I don’t. In my accounts, I have had excess cash on the sidelines for quite some time, being the bargain hunter I am, my instinct is to wait a little longer to see if I can get an even better deal. While I will likely be taking some actions in my account soon, my thought is I will likely wait until things get so dire that most people see no hope for the future of our economy or our nation, to get totally back in. Usually, it is during this time of absolute pessimism and panic that the stock market reaches its floor. I’m not sure if we’re quite there yet.
I know these times are difficult, and hearing it may get worse before it gets better is not very comforting. I also realize that seeing your investment accounts going down at the same time your expenses are going up can give even the most composed of individuals sleepless nights. The question is how do you react to these challenges?
I’ve heard that the Chinese language uses the same word for crises as they do for opportunity. I’m not sure if that’s actually true, but the principle behind that idea is true regardless. Every difficulty we face provides opportunity as well. Losing a job can lead to discovering a new purpose in life. A broken relationship can lead to finding a new love, and economic downturns can lead to new opportunities for market performance. You simply have to be willing to adapt to these setbacks and turn them into something positive. If you’re not sure if your investment advisor actively manages your investments ask them. I will warn you however, most don’t.