A Reminder in Times of Market Volatility

As we watch the market swing due to the public’s immediate gut reaction to global events, it is wise to pause and reflect on why the drop is taking place and note the similarities to early 2020. The current volatility is in response to the newly discovered Omicron variant of the Covid-19 virus. Early news seems to indicate that this variant could be especially transmissible, but also that it may have less severe symptoms than past strains. What we know about the exact nature of the variant may change, but regardless, the market’s reaction is closely tied to the fear of the unknown. While it is impossible to know precisely how things will shake out, remembering the past can help us as we move into the future.

 

In retrospect, the flash crash of March and April 2020 was about two months of sharp drops, accompanied by two months of the market rebounding. This rebounding was followed by a strong second half of the year, leading to many investors’ year-end net positive return. The investors who remained properly invested in the market ended the year with solid gains. They captured the return owed to them for withstanding the volatility and altogether experienced another successful year. Unfortunately, cases on the opposite end of the spectrum were all too common. In conversation with friends or in meeting new faces, the Legacy team has seen numerous investors who reacted to the drop in 2020 and moved all to cash after a 10, 20, or even 30% decrease in the value of their portfolio. These individuals often ended the year with significant losses and a sour taste in their mouths.

 

All investors experience the fear and discomfort that accompanies a string of red days. However, good investors capitalize on the opportunity presented. Whether that means buying in at a market low or reviewing tax-loss harvesting and rebalancing opportunities, Legacy pursues providing the best possible financial plans and investment experiences. We aim to position our clients’ financial lives to have the highest probability of reaching their financial goals. In these tense moments, the best way forward is through meticulous investment management and detailed financial planning.

 

Thank you for allowing us to serve you.

 

The Legacy Financial Group