Stock market volatility can create indecision

Investors should design a long-term written plan and stick to it.
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The stock market has made some historic gains lately (and suffered some big losses), but that doesn’t mean investors should be jumping in with both feet right now.

Some of those actions have led long-term investors who have invested in S&P 500 companies such as Apple, Tesla, Microsoft Corp., Walt Disney Co. and Meta (formerly known as Facebook) to make rush decisions depending on the direction of the market.

Ryan Diepstra. Courtesy Centennial Securities

Ryan Diepstra, COO for Centennial Securities in Grand Rapids, said despite the ebbs and flows of the stock market, S&P 500 companies have made gains, overall.

“The last three years in the S&P have been historic,” he said. “2019 netted 31.5%. 2020 was 18.4% and 2021 was 28.7%. Out of the last 13 years, the S&P has finished positive 12 times, and out of the last 19 years, the S&P has finished positive 17 times. Over the course of the last three years, the S&P has more than doubled, which was the highest three-year return since 1997-99.”

Diepstra acknowledged that between Jan.4-Jan. 24 of this year, the S&P 500 went down 12.4%, causing investors to become scared and wondering whether there will be a recession or bear market. 

“It is not uncommon for investors to look at the short-term outlook and be tempted to sell their investments or put it in cash until things return to normal or until the dust settles or until the economy improves, but let me tell you, there is always going to be something to worry about,” he said. “Any given time, whether the market is up, up, up or the market is down, down, down — we could have a pandemic, we could have a global crisis, we could have global tensions, we could have inflationary concerns. There is always something to worry about going back hundreds and hundreds of years.

“We know that volatility is normal, do not let it derail you, period. If you find yourself checking the value of your IRA (Individual Retirement Account) or your 401(k) online or on your phone app, I would suggest deleting the app, removing the URL from your favorites on your internet browser, go outside and go for a nice walk.”

Because of the volatility of the stock market, Diepstra said it is important to have a diversified portfolio that represents different sectors. Although 17 of the last 19 years have been positive for S&P 500 companies or larger companies, Diepstra said now is the time for investors to take a look at their portfolio to ensure their plan or portfolio aligns with their goals.

“It is our job here to hold clients accountable to their financial and investment goals through a written plan,” he said. “The plan is obviously not a one-time event. It is a process, and the plan should change every year because life happens, the positives and negatives in life, but the core of the plan should remain consistent. We’re here as financial advisers to make intelligent recommendations that are in the client’s best interest and maximize the probability of reaching those goals.”

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