It's hard to make predictions about the state of the economy. Ask any expert who has predicted a recession to be coming any day now.
But for those of us watching the stock market over the last few years—or even months—there may be a feeling of unease when it comes to navigating its volatility. Rising interest rates (and the possibility of rate cuts in 2024) have certainly been a factor in the rise and fall of stock prices and investments.
According to the November 2023 CNBC All-America Economic Survey, 51% of Americans said it was a bad time to invest in the stock market, compared to only 26% who said it was a good time.
"There are always questions and risks when it comes to the economy and market," said Steve Wyett, chief investment strategist at BOK Financial®. "But it is also true that there are periods where it seems uncertainty is especially high, like now."
In September 2023, the Dow Jones Industrial Average, S&P 500 and NASDAQ all had a negative return. But the tides seem to be turning, as the year-end numbers soared: S&P 500 gained more than 23%, the NASDAQ finished with a gain of 43% and the Dow finished near a record high. This kind of volatility can be stressful for investors, especially those nearing retirement age.
Take a look at your financial plan
Instead of reacting emotionally to market volatility, Wyett suggests reviewing your financial plan to make sure you're on the right path. And if you don't have one, now is a good time to put one in place.
"Rather than worrying about what the market is doing, focus on defining your financial goals and determining if you are on a successful path to meet those goals," suggests Kimberly Bridges, director of financial planning at BOK Financial.
In most cases, this starts with reviewing the asset allocation of your investments, Wyett said. "In general, when we are young, we have the single biggest asset for investing: time. Over longer periods, investing in stocks has produced the highest returns, yet we also know stocks can decline materially."
As investors get closer to retiring, this means investing in stocks might be more of a risk than it was in the past, which means that those looking to retire in the next few years need to take a look at their finances sooner than later. "Fixed income investments, like bonds, now offer cash flows significantly higher than when the Fed was holding rates near 0%; for those nearing retirement, bonds are much more attractive now," he said.
"Visit with your advisor or financial planner to make sure your asset allocation matches your ability, and willingness, to take the higher risk of stocks," Wyett added.
What to do instead of panic
"The important thing is not to focus on short-term volatility in the market, but rather your ability to meet your long-term goals," said Bridges. "Making emotionally charged decisions is the biggest threat to your long-term plan."
Aside from knowing your financial plan is sound, there are other ways to navigate tumultuous times in the market, including:
- Ask more questions. When reviewing your financial plan with your advisor, don't be afraid to ask the tough questions like, "What are the risks of this investment to my portfolio?"
- Keep your emotions in check. It's easy to be concerned when you see a statement and losses during flux in the market, but Bridges said that knowledge is the best defense against making short-term, emotionally based decisions which are not in one's best long-term interest.
- Understand how your assets are invested. Now is the right time to ask questions of your advisor that help you better understand each of your investments. In turn, they should also be able to provide data on past periods of volatility so you can gain a better understanding of what might happen in the event of a downturn.
- Alleviate stress through understanding. To help alleviate your stress, meet with your advisor to discuss your concerns and whether your financial plan is still on track to meet your goals. Also, keep in mind that advisors conduct "stress tests" on financial plans for volatility and risk as part of the financial planning process, Bridges said. So even though a market downtown may have caught you off guard, it doesn't mean your financial advisor and financial plan weren't prepared for it.
- Turn off the news. The doom and gloom reporting from major news outlets can make investors feel uneasy, but if your financial plan is sound and you've talked to your advisor about what to expect, then it might be time to tune out the negativity.
- Channel your energy elsewhere. As you navigate the ups and downs of the market, it's a good time to focus on other things, taking time to meditate, nix social media doom scrolling, or go for a walk—whatever helps keep you calm in trying times.
Wyett stressed the fact that history can be a good predictor of the future.
"Some events are nearly impossible to forecast, and we cannot know how all asset classes will respond to every event, but history gives us a guide," Wyett said. "It is impossible to achieve longer-term financial goals without taking some risk, but knowing the risks we are taking can help us feel more confident in an uncertain world."