Guide to a Market Decline

January 24, 2022
min. read

January started off the year with a bang… and not in a good way. Year-to-date, the S&P 500 is firmly in “correction” territory which is the term used when the market is down more than 10%. The Nasdaq is down almost 17% and approaching “bear market” territory (down 20%). It could be worse, bitcoin is down more than 50% since November and there are a host of individual stocks down more than 75%.


Is it Fed tightening? Rising interest rates? Rampant inflation? Covid? China? The pundits of pessimism are out in full force about the end of days.

Which ultimately will lead you to question “Is this time different?”

The answer is no, it’s not.

For a great lesson on market history and to better understand just how common these types of declines are, check out Ben Carlson’s latest blog How Often Should You Expect a Correction?.  

No one knows for sure why the market is selling off, but it doesn’t matter.

What's important to remember is this the “fee” for admission to the long-term returns, not a “fine” for doing something wrong.

The only way to obtain higher returns over the long run is to weather these losses in the short run. As Ben says, this is a feature, not a bug.

What Now?

First, take a deep breath and try to relax.

We’ve been here before.

We talk about it incessantly in our newsletters and our meetings, but as Mike Tyson famously said, “Everyone has a plan until they get punched in the face.”

Well, the market provided us with a heck of a punch. Your portfolios are behaving exactly how they should during times like this and it’s critically important to remember they are designed for times like this.

So, what should you do from here?

If your life goals have not changed do nothing.

You know the drill by now: shut off the TV, stop scanning the internet for catastrophic articles, and don’t incessantly check your account balance. Those are sure fire ways to lose out on being present in your life and make this temporary market decline even more painful.

Our job as investors during these times is not to try and avoid the pain, but endure it.

If you have excess cash… invest it.

As Warren Buffet famously said, “be greedy when others are fearful.” Don’t wait for the perfect time, get your excess cash invested now based on your life goals and timeframe. Your future self and your family will thank you.

If you are not sure give us a call.

That’s what we are here for. We have been through 2008, the Pandemic and a whole host of other market corrections and various panics. We have weathered them all… and you have too. We can revisit your portfolio as well as your life goals and give you the confidence and conviction to ride this out and focus on your life, not the market.

The Silver Lining

No one can predict short term market movements. Yes, it's painful and while it may get worse before it gets better, every day it worsens is a day we are closer to the end.

We ultimately have two choices: try and stop it or accept the “fee” for the lifetime returns.

While wanting to capitulate and sell out may feel good right now, sitting in cash is not a sound long term plan. Cash is an asset that pays virtually nothing and is certain to depreciate.

If you wait for the good news on the market or economy before reinvesting, you’ll miss it.

If your life goals have not changed, stay the course, turn off the TV, shut off that computer...and live your life.