What’s happening with my investments?
If you have been bold enough to watch the markets lately, you may feel like a ship tossed about in a storm. Maybe you are looking towards the horizon and praying to see the shore. The reality is that it’s impossible to predict exactly when things will settle down, and we need to keep our emotions in check if we want to stay sane. Let’s take a look at what has happened so far with the market over the past few months and then consider what kind of impact this might have on our trajectory—and our sanity—moving forward.
Should I panic yet?
The answer is no – but, if you’re feeling as though the stock market is going down like a rock and will never recover, It’s worth noting that these kinds of drops happen all the time—and they’ve happened before (and many times worse) (source: https://www.investopedia.com/timeline-of-stock-market-crashes-5217820).
We know the major indices are down. The Dow Jones Industrial Average is down 14.48% from January 1 through July 15. During the same period the S&P 500 fell 19.46% and the Nasdaq 27.67% as of this writing. That’s disappointing, but notice there’s roughly a 30% difference between the Dow and Nasdaq results. Unless all your investments track an index, your own portfolio’s returns may be above, below or somewhere in between.
Instead of focusing on the daily, weekly or even monthly returns of your holdings, though, let’s take a look at how having a plan can give you peace of mind right now. Whether you’re an OnTrajectory user or not, we are taking a look at two helpful practices.
1 – Track how your actual progress through the current market dip affects your long-term trajectory.
In this graph, the green line indicates actual progress and timeline begins with the 2020 pandemic market drop. After the two year rally after the pandemic’s onset, you can see that this portfolio has taken another significant hit this year. However, by staying the course with the plan already in place, the dotted line indicating current progress and the orange line indicating the projected progress remain quite close in the long run and there is not much reason to panic.
2 – Using two scenarios, one optimistic and one pessimistic, can help you make sense of what to do and when.
The graph above shows a comparative analysis. The orange trajectory is our original scenario. The dotted blue line is a relatively optimistic assumption that our growth rate grinds to a halt through this year but then bounces back to a more typical rate, and that inflation averages about 8% until the end of the year and then returns to a more historically normal 3%.
The dotted red line shows a more pessimistic view: extended negative growth and a longer period of high inflation. It imagines the stock market staying negative, with no recovery for two years. It also assumes inflation stays at about 8% for a few years. That’s a pretty bleak picture. But staring down a pessimistic scenario can help you face the potential reality and make plans to counter its worst effects.
There are significant differences in the outcomes of these two scenarios, but comparing them allows you to make adjustments to your plan in various ways. We always suggest consulting with a certified financial planner to make decisions about your long-term future plans.
How are you doing so far this year?
Tracking progress in your OnTrajectory account is a helpful way to see how ups and downs could affect your future. Whether you have a single retirement account or multiple investment accounts, you should be tracking your progress regularly. Even if your plans have taken a turn for the worse, there are ways you can adjust and get back on track.
If you don’t know how to track your progress in OnTrajectory, take 1 minute and watch this.
What happens in the future?
Clearly no one knows—who could have predicted Covid?—but you can explore some options. OnTrajectory allows you to model your own predictions and ideas. We don’t give you advice; we give you the tools to visualize and verify your own thoughts and assumptions. And most important, we help you regain some sanity by helping you see the bigger picture.
- Don’t panic yet. The market is down, but it’s not going to stay that way forever.
- Free markets are volatile! The market is unpredictable—but what else are we supposed to do with our money?
- Remember, over time, Bull Markets typically last far longer than Bear Markets, so a conservative long-term growth rate of about 5% generally accounts for both dips and spikes.
- OnTrajectory uses both Monte Carlo and Historical Analysis, so we are simulating a regular mix of ups and downs through the years. In other words, we calculate your chance of success by taking many models, some positive and some negative, and running them all to get a better, more thoroughly considered result.
The market will recover in time, but it is hard to predict exactly when that will be. That’s one reason why the best investors keep their emotions in check.
The best investors are also cold-blooded. They run against the crowd, not with it. In fact, legendary investor Baron Rothschild wrote, “the time to buy is when there’s blood in the streets.” Most experts agree that the stock market will recover in time, just as it has done in the past. However, it’s hard to predict exactly when that will happen—and how long it will take to recover from the current sell-off. The S&P 500 has fallen by about 15% year to date, but it has recovered from far worse crashes in the past. In 1987, for example, stocks fell more than 22% before recovering by 1990. Still other financial crises have been even more severe: In 2008 and early 2009 alone, stocks lost about 50% of their value before rebounding strongly throughout 2010 and 2011.
The bottom line is that you should look at the market’s performance over time, not just what it does in one week or month—and then, follow your plan.