Relax and Focus on Long-Term
The market has been a little more jittery than we are used to lately and while it isn’t fun to experience, it also doesn’t come as a surprise. We’ve been talking about rising inflation, fed tapering, Covid variants, and interest rates for some time now so it shouldn’t come as a surprise when we actually see some of these elements play out in the market. The truth is that nobody knows exactly what 2022 is going to bring, or the end of 2021 for that matter. However, what we can control is our investment allocation, our long-term goals, and to resist the urge to have to make changes or act when we see the market going for a ride.
Remember March 2020?
It’s human nature to experience market fluctuations and convince yourself that “this time is very different.” We only have to rewind our clocks 20 months to remember how it felt the last time we saw some significant market volatility (keep in mind we haven’t really even seen volatility to that extreme from the recent Omicron variant news). We said this in our Covid impact blog last year and the quote from Mr. Buffet rings true to this day…
“Has the 10-year or 20-year outlook for American businesses changed in the past week?” I think it’s safe to say the answer to that is a resounding “No!”. We certainly don’t make light of the fact that it can be difficult to stomach paper losses we see when checking our investment accounts, we only reiterate the point that re-focusing on the long-term is ALWAYS a smart decision.
Further Fluctuations Could be from GOOD News
Regardless of what the longer-term impact is of the Omicron variant (or any other future variant for that matter), it’s important to look at other economic news that could spur future market drops. The federal reserve is starting to reduce their bond purchasing program this month (they currently buy over $120 Billion of bonds each month!) and they have recently said they may even speed up their “tapering” process of reducing these purchases. This type of news can sometimes spook the markets and cause downturns like the ones we saw during this week. Again, it’s critical to take a step back and remember that the only reason the federal reserve would taper their purchasing program OR increase interest rates in the future is because they see the economy coming from a position of strength.
Put another way, they see GOOD news with the economic recovery and they therefore adjust their plans accordingly. The market simply wants certainty and even when it’s good news that causes course corrections, the market can sometimes react with drops that don’t make much sense for longer-term investors.
It’s a simple message and maybe one we all know internally, but despite any market changes that may occur in the coming weeks or months, remember to focus on the long-term and stay invested along the way!