Bad Market

Bill Parrott |

2022 is off to a vicious start as every major asset class is underwater, even Bitcoin. Stocks, bonds, and real estate are down over concerns about Russia, rising interest rates, inflation, and the Federal Reserve. In fact, the S&P 500 and NASDAQ are off to their worst start ever! Ever!


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Markets fluctuate. Since 2000, the average monthly fluctuation has been .73%. In October 2008, the index fell 16.79%, and in April 2020, it soared 12.8%. Year-to-date it's down 7%. The market has been up 78% for the past three years, so giving back 7% seems fair and reasonable. And over the past decade, the S&P 500 has risen 236.7%, including the recent drop.

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Investing in stocks is risky. If you enjoyed the returns for the past three, five, ten years, you must be willing to suffer a few painful drops because risk and reward are related. To achieve higher returns, you will forego safety. If you worry when stocks fall, your allocation to stocks is too high. US T-Bills have never lost money, and since 1926 they averaged 3% per year, but so has inflation, so your net return is zero. Over the same period, stocks averaged 10.1% per year, but they suffered significant losses along the way, including a couple of decades where the return was near zero, or worse. For example, from 2000 to 2010, the S&P 500 lost 24%! You can't have your cake and eat it too.

Flying from Los Angeles to New York takes about five hours, but there are risks. Walking is much safer, and you could make the journey in about 76 days if you walked for 12 hours each day. Of course, no sane person would choose walking over flying.

Here are a few tips to help you manage your assets in a volatile market.

  • Follow your plan. You're less likely to make foolish investments mistakes if you have a financial plan. It is your financial GPS, and it should keep you focused on your goals.
  • Think generationally. Don't let short-term moves derail your long-term plans. If you plant a tree today, it could be hundreds of years before it matures.
  • Diversify your assets. Spread your risk across several asset classes to reduce your risk. So far, bonds and international investments are outperforming the S&P 500 and other domestic securities.
  • Don't look. Investing is not a sporting event, so turn off CNBC, disconnect from Twitter, and ignore the noise. Media channels do not have your best interest at heart, and they know nothing about your financial situation. Most media pundits are wolves in sheep's clothing looking to pounce on innocent investors. Beware!
  • Give. You probably have significant gains if you've owned stocks for the past few years. Consider using your resources to help those in need. It's hard to worry about your situation when you're helping others.

What will happen tomorrow, next week, next year? I don't have a clue. Trying to time the market is impossible. Will the market crash? Maybe, it's done it before – several times, but, over time, markets rise. Don't let tomorrow's worries steal the joys of today.

Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life? ~ Matthew 6:25-27

January 28, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.