Monday marked the worst stock market close on Christmas Eve ever, with the S&P 500 dropping 20 percent from its 52-week high and the Dow Jones experiencing significant losses.
The uncertainty is causing some panic among investors, who are wondering whether it’s time to change track.
But before you call your financial advisor, John N. Roberts, a senior portfolio manager for Segall, Bryant & Hamill, says it’s important to look at the big picture and your personal financial situation before making any drastic changes.
“Nothing lasts forever, and people have got to remember that the business cycle is alive and well,” Roberts said.
The Federal Reserve has been raising interest rates, causing some of the volatility in the market, but things like the partial government shutdown and ongoing trade talks are also playing a role.
“You have so many factors and so many variables in the stock market, whether it is fear of trade wars and tariffs or geopolitical tensions, we’re seeing slowdown overseas,” Roberts said. “What really matters is corporate profits and fundamental GDP growth.”
For years, the U.S. economy has been growing. Historically, the typical period of growth lasts 5.8 years, Roberts said. But, the U.S. is already in year nine and a half of growth, so a slowdown isn’t totally unexpected.
“We have seen a long time period of muted volatility and now volatility is coming back so that catches people off guard,” Roberts said. “But stocks go up, stocks go down and I think a lot of it has to do with making sure you have the proper asset allocation and are working with your financial advisors to understand risk and reward.”
For people that are younger in their careers and have decades until retirement, Roberts says what’s happening with the market in a particular week or month shouldn’t matter as much since they have time to make the money back.
“If you have a 30-year time horizon that your money has to last, then what happens on a day-to-day basis is really just kind of noise,” Roberts said.
For people getting closer to retirement, however, it might be a better choice to consider safer investments, depending on your financial situation.
“The older you get, yeah it’s time to reassess, are you able to stomach that type of volatility,” Roberts said.
At the end of the day, it all depends on what Roberts calls the pillow test and whether you’re losing sleep over the amount of risk you take with your investments.
“Every single person’s asset allocation is going to be unique to them and their time horizon and their risk tolerance,” Roberts said.
However, since the 1820s, 71 percent of the time the stock market has ended in growth.
“Those are pretty good odds,” Roberts said. “It is that constant trade off that investors have to deal with which is risk versus reward,” he said.
For now, Roberts says it might be better to turn off the television or stop checking your stock market app on your phone and relax with your family instead of hitting the panic button. He also says it might be a good idea to check in with your financial advisor at the beginning of the year to reassess your investments.
“New Year’s resolutions are not just about going to the gym and eating, they’re about looking at your financial plan as well,” he said.
