At Lighthouse Wealth Partners, it is important to us that you are well informed about what is happening in the markets. U.S. stocks staged another resurgence Tuesday (1/25), but closed lower despite a momentous rally from losses in midday trading. These losses occurred as investors anticipate clues from the Federal Reserve’s policy-setting meeting on how quickly the central bank may move to tighten monetary conditions.
During these volatile times, we understand the market can be frightening! As investors, the most important thing you can do is keep your emotions in check. Jason Zweig’s Wall Street Journal Article Why You Should Sit Out the Mayhem provides a great explanation for investors in response to volatile markets .
It isn’t investments that get tested in turbulent markets; it’s investors. In midday trading on Monday, the Dow Jones Industrial Average sank more than 1,100 points and the Nasdaq Composite Index crumbled nearly 5%. They recovered to close slightly up for the day, then sank again early Tuesday before clambering back. The Nasdaq Composite Index is down roughly 12% so far this year.
These steep drops came after almost two years of a nearly relentless rise in prices. After such widespread gains, small declines loom larger than they do when losses occur with more-typical frequency. Above all, what matters isn’t what the market does—but what you do in response.
Individual investors should tune out the futile efforts by commentators and strategists to extrapolate the market’s latest swings into a prediction of what will happen next. Instead, use the recent volatility to make an honest reassessment of what kind of investor you are and how much risk you can stomach.
If you have been glued to financial television or websites, fixated on the sight of falling arrows and reddening charts, then this year’s short-term turbulence already has told you something about yourself that has enormous long-term importance: You probably have too much in stocks. That is especially true if you retreated in early 2020; the best guide to how you will behave in the next crash is how you acted in the last one. If you can’t take the pain, you should feel no shame about staying on—or moving to—the sidelines.
Whether you cut back on stocks or not, the more frequently you check how your portfolio is doing, the more volatile it will feel. Try turning off your phone, putting it in another room, taking trading apps off your home screen—anything to form positive habits and improve your investing hygiene.
On the other hand, if you can control it, fear is the best fertilizer for future bull markets. Market panics are the indispensable hygiene of markets, the natural way overvalued assets come back into line, making future returns more attractive.
Every investor should be thankful that stocks do go down, for two reasons.
First, if stocks always went up, they would be riskless—and their returns would end up being paltry. The short-term pain of loss is the price we pay for the potential for meaningful long-term gain. Second, if you have plenty of cash and courage to withstand further declines, other people’s fear could be your cue to act. As I wrote in 2009: “It is sometimes said that to be an intelligent investor, you must be unemotional. That isn’t true; instead, you should be inversely emotional.”
That means market declines don’t have to be a cause of consternation. They can be an opportunity.
Please do not hesitate to contact me or our Lighthouse Wealth Partners team with any questions or concerns you may have. I look forward to seeing you soon.
 Source: Wall Street Journal, https://www.wsj.com/articles/why-you-should-sit-out-the-mayhem-11643142839