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3 Tips for staying confident in a volatile market

3 Tips for staying confident in a volatile market

June 27, 2022

The past few years have been giving us a wild ride in the stock market – and the steep drops of 2022 can be unnerving. But like any rollercoaster, there will also be upswings. A certain amount of volatility is the inherent nature of the stock market.

Even so, a little reassurance can go a long way. If your hard-earned 401(k) and other investments are taking a dive, try not to get too alarmed. To help you more comfortably navigate downturns in the market, here are some important things to keep in mind…

1 - Remember history and do the math

Yes, the market is down this year, but it can’t keep going up double digits every year. The S&P was up double digits in 2020 and 2021, and that is not sustainable. Market correction is normal and healthy for long term growth.

By early June of 2022, the S&P was down about 16.75% for the year. That may seem like a lot. But consider that in the past five years, the S&P has had two downturns over 30%. Currently, the five-year trailing average (market return) on the S&P is still over 71%. Looking at long-term averages can be a helpful reminder that big fluctuations do smooth out.

It is not about timing the market, it is about being in the market over time.


2 - Keep steady with your 401(k)

If your retirement savings drops suddenly in a volatile market, you might be tempted to get out while you can. Or scale back the amount you contribute from your paychecks. But try to hang in there. Staying in the market when stocks are down is a good way to allow the fund managers to ‘buy low’, and you might reap the rewards when the market swings up again.

From an investment standpoint, the market is on sale. While stocks are down, your 401(k) contributions can purchase more shares, yet with the same amount of money as before. When the market recovers, that allows for exponential growth of your savings.

And regardless of the market, it’s still a good idea to keep building for your financial future. If you are still working, try to contribute the maximum allowed for your 401(k). In 2022, the annual limit is $20,500 for those under 50. Investors 50 years and older can also make an annual catch-up contribution up to $6,500 for a max of $27,000.


3 - Reconsider your risk tolerance

To more comfortably weather storms in the market, it’s important to have your portfolio reflect your own personal risk tolerance. As a client of Buffalo Financial Strategies, we help you assess your investment comfort level using Riskalyze, an industry-leading analysis platform. It produces a calculated measure of your risk tolerance, which helps ensure we diversify your portfolio with the appropriate amount of downside protection.

How you feel about financial risk could change over time. Maybe you’re nearing retirement and want to kickstart a little more aggressive growth in your savings. On the flipside, what might have seemed like an acceptable loss for you only a few years ago, might feel very different now that you have kids.

If you are uncomfortable with the current market volatility and would like to review your risk profile and portfolio diversification, let’s talk. You can schedule a meeting with Zach Engraff right on our website.

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