It’s been a chaotic quarter for the U.S. stock market. In April, indices approached bear market-territory, while economic turmoil roiled bonds and sunk the U.S. dollar. The quarter ended, though, on a dramatically different note as the S&P 500 closed at record highs in each of the past two sessions, reflecting soaring confidence by investors.
While the highs can feel like nirvana for investors after the recent uncertainty, financial planners say it’s business as usual for them and their clients. They happen often, and are a feature of a healthy market and a growing economy.
“All time highs are exciting, but expected in a growing stock market. It’s like saying once per summer that my tree hit a new all-time high,” says Robert Persichitte, a Colorado-based certified financial planner (CFP). “In fact, more than 25% of the time, monthly closing market levels are new all-time highs.”
What the new highs do show is how important it is to keep calm during times of turmoil. Those who pulled back their investments in April, when the market was tanking and emotions were high, may be missing out on all of the gains now.
As Fortune wrote then, most gains are made in just a few days every year. That means that selling stocks then or pausing contributions and then trying to time your way back in will prove a bad strategy 99% of the time. In fact, 78% of the stock market’s best days occur during a bear market or the first two months of a bull market, according to Hartford Funds, an investment management company. You don’t want to miss them.
“If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half,” Hartford Funds writes. “And missing the best 30 days would have reduced your returns by an astonishing 83%.”
That said, there are some things investors can do now that the stock market is on less shaky ground, says Marcos Segrera, Florida-based CFP, including reviewing their overall financial plan and overall diversification. Peak volatility is the worst time to make any changes to your investment plan, but now could be a good time to review your holdings.
“Assess your geographic exposure. Check your percentage in U.S. stocks versus stocks outside the U.S. to ensure you remain globally diversified,” says Segrera. “It’s not about timing the market, but ensuring your portfolio is aligned with your long-term goals.”
Though diversification has always been important, it’s becoming an even bigger focus for many U.S. investors now, financial planners say. It’s the best hedge against uncertainty, especially when domestic policy in the U.S. is as chaotic as it has been the past few months. Having international holdings can ease anxiety.
More importantly, remember that while the market’s current valuation is a needed reprieve after the recent anxiety-inducing plunges, it means very little about future investment returns. The market will fall again, and inevitably hit another all-time high. And then another after that.
“There will always be a ‘crisis du jour.’ Whether it’s inflation, elections, or geopolitical tensions, there is always a headline that can cause anxiety,” says Segrera. “Successful investing involves discipline and focusing on your long-term goals, not reacting to the constant noise and the crisis of the day.”
