4 Things Every Investor Should Know Right Now

Matthew Navickas, AAMS®, an associate director of Research & Trading at Falcon Wealth Advisors, recently joined me on Upticks to discuss four things every investor should know during this period of market volatility. I want to congratulate Matthew for recently passing level one of the exam process to earn the Chartered Financial Analyst designation. His continued learning will benefit Falcon Wealth Advisors clients.

Because Matthew is a member of our Research & Trading Group and plays a role in determining which stocks we buy and sell for our clients, I thought it would be interesting to have him on the show during this time. A summary of our conversation is below.

Matthew: The first thing we should discuss today is the importance of staying invested. It’s challenging to see your portfolio decrease in value, but it’s important to stay invested in the market in good times and bad. Here’s an interesting note from FactSet: if you stayed fully invested in the S&P 500 between January 2002 and January 2022, you would have an average annual return of 9.4%. But if you missed just the best 10 days in that 20 year span, your average annual return would only be 5.21%.

Jake: Wow. That’s a significant difference in average annual return; this can have a major impact on a financial plan. It is fascinating that just sitting out a few days here and there risks cutting your average annual return by nearly half. This is why we stress the importance of not trying to time the stock market, which professionals like us don’t attempt. Time in the market is what’s key, not timing the market.

Matthew: Another interesting fact is that seven of those 10 best days occurred within two weeks of the 10 worst days. So the days that are outliers for both positive and negative performance are happening pretty close to each other. That’s why it’s critical not to let your emotions guide your investment decisions and exit the market during a downturn. It’s nearly impossible to time the market.

Jake: And if the market is down and you want to sell, it’s already too late. It’s a cliché but it’s true: we aim to buy low and sell high. Let’s avoid selling low.

The second thing every investor should know is to not solely focus on the broader market’s returns. The S&P 500 is down about 20% this year, but that doesn’t necessarily mean your portfolio is down that much. At Falcon Wealth Advisors, when we meet with clients, we compare the performance of their portfolios to the overall market. I’m proud that, generally speaking, our clients’ returns have been better than those of the overall market. We’re able to easily show a client how this impacts their financial plan.

And speaking of planning, we plan for market downturns like this one. We were not caught off guard by this market correction. We build plans for our clients so they can retire and continue to have income in any type of market environment. We of course don’t enjoy downturns like this, but it didn’t surprise us.

Matthew: Yes, and I encourage Falcon Wealth Advisors clients to stay focused on their financial plan and its goals, rather than what they hear on the news. The market won’t go up every day and every year, but if we stay disciplined and focused on our financial plan, we have a good chance to meet our goals.

Our third thing every investor should know right now is the importance of staying diversified. It may appear the entire market is down, whether it’s stocks or bonds, but a closer examination reveals some stocks and bonds—like oil—have done well in 2022.

This is important because if a client needs to take a distribution from their account, we have stocks we can sell that are up in value; we don’t necessarily have to sell stocks at a low point. Staying diversified with stocks from across the broader market can help clients weather this storm.

Jake: Well said. When I meet with clients, I let them know which stocks are up during this period of volatility. If a client needs money, those stocks are what we will sell. And even if they don’t need money, we will often rebalance the portfolio by selling stocks that are high and buying some that are low. Again: buy low, sell high.

Our fourth tip is that if you want to make money, you have to be willing to stomach some risk. This is called a risk premium. If you want the opportunity to earn a positive average annual return, you have to be willing to risk capital and stomach these periods of volatility.

History is not a guaranteed predictor of future performance, but it does show us that if you’re able to stay disciplined, you will be rewarded through capital appreciation.

Matthew: This fourth tip ties into the first three we discussed. We’re taking on risk, but we know history shows investors are often rewarded for staying in the market. We’re taking on risk, but we know our portfolio is diversified. Reminding yourself that you’re not overly exposed to any one sector can be helpful during times of anxiety brought on by market declines.

Jake: And we aim to make sure that every client has at least 5-10 years worth of living expenses invested in bonds, cash, dividend-paying stocks and other investments outside the stock market. This is because we view stocks as long term-investments to fuel your financial plan. Hopefully knowing your short-term income needs are covered leads to clients being able to pause, reflect and take a breath during times like these.

Again, I believe these are four things every investor should know during this time. If you want to discuss them further, please contact Falcon Wealth Advisors today. You can reach me directly at Jake@falconwealthadvisors.com.

Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan means to them.

Legal & Privacy

Securities offered through Hightower Securities, LLC, Member FINRA/SIPC, Hightower Advisors, LLC is a SEC registered investment adviser. brokercheck.finra.org

©2022 Hightower Advisors. All Rights Reserved.