In times of uncertainty in the global financial climate, a pair of local experts stress patience.
Joe Gugino, a certified financial planner at Gugino & Ryel Financial in Fredonia, and Larry Fiorella, a financial advisor at HBKS Wealth Advisors in Fredonia, urge investors not to panic.
Still, given the current financial state of our nation and around the world, Fiorella admits the situation investors find themselves in is far from ideal.
“This has been a difficult year, one of the worst years, if not the worst year, since the financial crisis (2007-2008)”, Fiorella said.
According to the S&P 500, markets are down 22% from the peak late last year. More recently, markets are down just 14 percent since the end of August. However, based on past examples, hard times are not going to last forever.
“Eventually, inflation will come down, it will be as fast as it went up, probably not. But it will come crashing down, it has in the past. … He always does “. Gugino said.
Currently, we are in what is called a “bear market”, which means that the decline has exceeded 20 percent. Going back to the last 40 years, bear markets typically occur once every five years or so. That figure is closer to every two or three years if you include 15% drops. Significant declines are a regular and recurring feature of the stock market, but this is not a common situation.
Many different factors have contributed to the current financial landscape. One factor that Fiorella and Gugino agree is a major driving force is rate hikes approved by the Federal Reserve to combat inflation.
“What I see happening is that (the Federal Reserve rate increase) was passed to combat inflation. That’s going to do some real damage to growth. … It’s inevitable when you raise rates like that,” Gugino said.
The Federal Reserve has committed to raising rates until inflation is under control. That has caused a current recession in the market. Caution is warranted, according to Gugino, because continued market turmoil is anticipated as inflation is not yet under control.
Fiorella noted how pandemic relief funds and demand outstripping supply in many cases also played a role in the current state of the market.
“Pandemic assistance flooded the market with cash, so that didn’t help. Also, there was demand for products during the pandemic and there was no supply to meet the demand.” Fiorella said. “I understand what (the Federal Reserve) is doing, but inflation will come down.”
Gugino said that once the impact of inflation finally recedes, the door will open for sustained growth and market gains.
“If it’s fully invested, this would be the worst time to exit the market.” Fiorella said. “You don’t want to make rash decisions in the short term. … You have to stick to your plan.”
In the short term, there are still positive things to come from the current state. The higher rates offer an opportunity for savers to earn a decent, low-risk return. For anyone setting aside money, a bear market offers the opportunity to buy shares on offer, which could lead to better future returns when the market recovers.
“If your long-term plan is in place, you can handle this. If you have cash on the side… it’s not a bad time to get some.” Fiorella said.
Younger investors who are putting money aside for the future are in a good position right now, especially with prices falling in the market.
“If you’re younger and putting money into a 401K or retirement, keep doing it,” Gugino said. “Things are much cheaper than at this point last year. … If you are younger and in that position, this is an opportunity.”
For those retiring, rate hikes aren’t doing as much damage as might be perceived. “If your portfolio is positioned correctly, it shouldn’t affect you as much.” Gugino said.
Gugino pointed out that the group most negatively affected are people “they barely hold on”, financially, especially now during inflation. Gugino stresses that he knows how tough times are for people in that position, but that this won’t last forever.
“I think we will be better next year. I think we will be in turmoil for the next three to six months.” Fiorella added.
An important thing to consider at a time like this is to find out if you really feel comfortable with the risks you are taking with your investment portfolio. Fiorella and Gugino stressed that at a time like this, meeting with your financial advisor is very important because the worst thing you can do is make a rash decision in a panic.
“It is not a bad time to look at your portfolio, not to make rash decisions with it, but to be smart and look at your allocation in the markets”, Gugino said. “What you don’t want to do is sell in a panic and miss out on any future bounce.”
Both Gugino and Fiorella believe the bottom line is simple: Fed rate adjustments and other factors have led to scary numbers right now, but they will get better over time.