Best Financial Advisor in Florida – Volatile Markets 2022
Best Financial Advisor in Florida – Volatile Markets 2022
Focus on the long term to navigate volatile markets
The global economy and stock markets faced several headwinds as this year began, and we saw markets fall in January as investors weighed up the outlook. The S&P 500 was down 5.86% for the month.
However, subsequent events, notably the Russian invasion of Ukraine, have caused markets to fall further and at the time of writing the S&P 500 is down 13.31% this year.
When markets have fallen to this extent, it is natural to be concerned during these challenging times.
Of course, we share those concerns and understand that it is often tempting to do something, take control and make some changes. However, it is important to take a step back and think before acting.
So, what has happened? Best Financial Advisor in Florida
Expectations of rising interest rates to temper rising inflation had already begun to lower growth expectations and in turn impact markets at the start of the year.
The announcement of major lockdowns in China caught many by surprise as there had been hopes the Chinese would drop their zero-COVID policy following the winter Olympics.
The strict lockdowns meant that Shanghai’s port, which is the world’s largest, was running at a severely reduced capacity.
This caused significant backlogs and exacerbated the disruption to global supply chains which has been a feature of the post-pandemic recovery.
In addition, it raised concerns that Chinese economic growth would also slow as large parts of the economy were closed.
Then Russia’s invasion of Ukraine caught the world by surprise and took things to another level.
It led to significant reassessments of the economic outlook and forecasts across the whole market.
The war has directly impacted commodity prices, everything from oil and gas to wheat and sunflower oil.
Russia and Ukraine are globally significant suppliers of a wider range of commodities.
As a result, we have seen inflation, which was already rising, take off.
This inflation spike is feeding through to investor sentiment.
High inflation increases the expectation of interest rate rises (which we are seeing). In addition, there are concerns the US Federal Reserve has lost control of inflation, having been initially slow to act.
How did this impact markets? Best Financial Advisor in Florida – Volatile Markets 2022
The impact on markets has been significant. The shift from low inflation and the low-interest-rate world, to one of higher inflation and higher interest rates, led to a rotation in the stock markets.
Technology companies, and as a result the US market, led markets lower. This is because higher-growth companies, which offer profits tomorrow have become less attractive when compared to lower-growth companies making reasonable profits today.
However, other areas have benefited, such as energy stocks for example, which are profiting from higher oil and gas prices.
How to navigate challenging markets? Best Financial Advisor in Florida – Volatile Markets 2022
During market downturns we find it helps to focus on the things that matter:
- Take a long-term view
When markets fall it can be disconcerting and the desire to act is strong. This is when it is important to take a long-term view.
As professional investors, we have been here before.
Market falls are an unfortunate part of investing. The chart below shows that over the last 50 years, we have seen 12 drawdowns (peak to trough falls) of comparable size, or greater, in the US equity market.
Despite these setbacks, the S&P 500 is 3200% higher than at the start of 1973, not to mention the dividends paid out during that time.
Simply put, the trend is for stock markets to rise long term. Over the last 20 years, after inflation, US equities have, on average, returned more than 6.5% a year.
When combined with the power of compounding, which boosts investment returns, there remains a compelling case for maintaining equity exposure.
- Time in the market matters, not timing the market.
During market corrections, it may be tempting to cut your losses and move into cash.
This is harder than it seems.
Not only do you have to time your exit right, but you also must get your re-entry into the market right too.
This means having the conviction to buy in at a lower level, which is often when the outlook is even more negative and investor confidence is at its lowest.
If you get the timing wrong the impact on performance can be huge.
- Maintain diversification
Diversification is a crucial concept for financial markets. It helps reduce risk and volatility in a portfolio. It also helps deliver better returns for the risk taken, and the evidence backs this up. A 2019 study found that investors could increase their expected returns by up to 3% a year just by moving from a concentrated portfolio to a diversified fund with the same level of risk.
- Grounds for optimism?
There are reasons to be positive.
The inflation spike is currently a short-term phenomenon.
The main contributors, energy, and food are generally considered transient drivers of inflation as their prices can quickly go up and down.
So, it is possible that inflation could ease back as the spike in prices works itself out of the system.
If we start to see that happening, then markets could recover.
The risk is the longer inflation remains high the greater the impact on the economy.
In the meantime, analysts’ forecasts have been improving throughout this year.
Company earnings, as measured by Earning Per Share (EPS), are now expected to rise 11%, up from 7% which should support share prices.
Many companies have also been able to pass rising costs through to their customers, with global profit margins hitting 40-year highs.
It is these fundamentals that drive markets over the long term.
If the global economy can avoid a recession in the next 12 months – economists currently assign a one-in-three chance for the US – and firms deliver on these estimates, then the sentiment is likely to improve.
There’s no doubting that we’re in a challenging period for markets but taking a long-term view and focusing on the fundamentals should ensure investors are well-positioned for when markets recover.
Mintco Financial – Financial Advisor in Florida
When it comes to making decisions about money, one of the most frequently occurring pieces of advice is to speak to a financial advisor.
While there is a wealth of information and advice available on every major financial decision people are likely to face in their lives, every situation is different — so what works for one person may not suit another.
Most relationships between financial advisors and their clients are ongoing, not transactional.
When it comes to choosing who you want to work with then, apart from vetting their qualifications, their experience, and their reputation, make sure your financial advisor is someone you feel comfortable sharing your goals and ambitions with — someone you feel happy to work alongside.
Also, make sure to ask upfront about the fees involved.
In advance of the commencement of any relationship with a new client, a financial advisor will always agree on both the scope of the work and the cost of the same.
It is important to be prepared for the first meeting with your chosen financial advisor. Gather any documents that you think an advisor might need and bring them along with you, such as information on previous pensions you have paid into, your current or savings account statements, your current investment portfolio, etc.
During the first meeting with a financial adviser, always answer their questions fully and honestly. It will help both you and your adviser to get a clearer picture of your overall circumstances.
Be sure to take notes during your meeting in case you forget something later, and ask questions about anything you don’t understand. It’s important to take time to consider any recommendations carefully.
Be sure to ask as many questions as possible to ensure you fully understand the financial product(s) before you sign any agreement or contract.
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