Navigating the crests and valleys of a turbulent market.
The last three years have seen extraordinary market turbulence and ever-changing market narratives – from COVID-19 to inflation, rising interest rates to geopolitical instability.
Several regional banks received support from the U.S. government in the first quarter of 2023. As interest rates climbed, layoffs at major tech companies like Google become everyday events. And speculations of a potential recession pervaded most of this year and continue loom over all activity. Sometimes it’s hard to know which market indicators to pay attention to, and how or when to react (if at all) to reduce the risk in your portfolio.
A look back
A quick look back reveals that the current market turbulence and potential recession are nothing like the 2008-2009 financial crisis. In stark contrast to 15 years ago the consumer and housing market are in far better shape today. There are fewer risky subprime mortgages, and oversight on lending has increased to ensure that the mistakes that caused the 2008 crisis don’t reoccur.
Another notable, recent downturn was the fast two-month market contraction in 2020 as the onset of COVID-19 reached worldwide proportions. And let’s not forget double-digit inflation in the 1970s, in part due to commodity price jumps, oil embargos, imposed wages and price controls. This prompted the Federal Reserve to raise interest rates to historic highs in the early 1980s, triggering two back-to-back recessions in 1980 and 1981-82. A strategic move on the Fed’s part to slow the economy and consequently shrink inflation.
In 2023, none of the above scenarios exist in the same way. Unemployment is steady at 3.5%, inflation is headed downward, interest rates have peaked since the sharp increase in 2022, and corporations overall are more secure. Many strong fundamentals are underpinning the entire market, and while no one knows what the future may hold, any 2023 or 2024 downturn is expected to be short. Many corporate CEOs predict a “soft landing” as the outcome most likely.
Undoubtedly, turbulence and recession worries can make you want to evaluate your portfolio to make sure you’re well-positioned to weather the storm ahead.
What stage are you in?
Market turbulence is one thing to think about when navigating your path forward. But you’ll also need to gauge your needs and assess your goals while being mindful of your current financial standing. Below are considerations specific to key life stages to help you design your plan of action.
Pre-retirement
Pre-retirement is a time to think about how much of your assets you want to keep liquid, and about your asset allocation itself. You have some time before you need to depend on retirement distributions – so how comfortable are you with the levels of risk in each part of your portfolio? In terms of liquidity, how can you best balance safety with growth?
Retiring
If you’re a year away from retirement or even right about to retire, your calculations may be a bit different. Facing the prospect of a drop in value to current investments may be unsettling. Reviewing your current fixed and flexible expenses and the work you’ve done with your financial advisor in the years leading up to retirement can give you a better handle on your position.
Going back to your individual goals and what you hope to achieve in retirement, as well as revisiting financial obligations, are always the best places to start. Making careful, frequent reviews of any changing circumstances is good practice too.
Post-retirement
A bear market hitting after you’ve left the working world is a common worry. Working with your financial advisor during this time can be a good way to ensure you’re continuing to have a balanced portfolio that makes sense for your situation. An advisor can also serve as a trustworthy third party to talk through any moves you want to make in the market.
Go back to your individual goals and reassess your expenses, the value of any second homes, and what you’d like to spend time on going forward, whether that means pursuing art classes, spending more time with grandchildren or doing other things you love. Philanthropic endeavors may also come into play at this stage, and planning for the legacy you want to leave behind.
Market turbulence and the shadow of a coming recession can strike a note of fear into even the most seasoned investor. But by taking stock of your individual goals and assets, and acting judiciously, you can better navigate the currents and eddies ahead.
There is no assurance that the trends mentioned in this article will continue or that the forecasts discussed will be realized. Economic and market conditions are subject to change. Past performance may not be indicative of future results. There is no assurance any investment strategy will be successful. Investing involves risk including the possible loss of capital. Asset allocation does not guarantee a profit nor protect against loss. You should consult with your financial advisor for advice based on your personal situation, financial goals and objectives.
Sources: yahoo.com; investing.com; forbes.com; npr.org; federalreservehistory.org; abcnews.go.com; aarp.org; finra.org; nytimes.com
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