Oct 15, 2022
In times of uncertainty in the world-wide financial climate, a pair of local experts are stressing patience.
Joe Gugino, a certified financial planner for Gugino & Ryel Financial in Fredonia and Larry Fiorella, a financial advisor with HBKS Wealth Advisors in Fredonia both are urging investors not to panic.
Still, given the current financial state of our nation and across the world, Fiorella admits the situation investors are in is far from ideal.
“This has been a rough year – one of the worst years, if not the worst year, since the financial crisis (2007-2008),” said Fiorella.
According to the S&P 500, markets are down 22% from the peak at the end of last year. More recently, markets are down just shy of 14 percent from the end of August. However, based off past examples, the hard times are not going to last forever.
“Eventually inflation will come down – will it be as fast as it went up, probably not. But it will come down, it has in the past. … It always does,” said Gugino.
Currently, we are in what is called a “Bear Market”, meaning the decline has surpassed 20 percent. Going back over the last 40 years, Bear Markets occur typically once every five years or so. That figure is closer to every two to three years if you include declines of 15%. Significant drops are a regular and recurring feature of the stock market, but this is no ordinary situation.
A lot of different factors have contributed to the current financial landscape. One factor Fiorella and Gugino both agree is a major driving force is the rate hikes passed by the Federal Reserve to combat inflation.
“What I see going on is the (Federal Reserve rate hike) was passed to fight inflation. That’s going to do some real damage to growth. … It’s unavoidable when you raise rates like that,” said Gugino.
The Federal Reserve has committed to raising rates until inflation is under control. That has sparked a current downturn in the market. The caution is warranted, according to Gugino, because continued market turbulence is anticipated as inflation is still not under control.
Fiorella pointed out how the pandemic assistance funds and demand outweighing supply in many instances also played a major role in the current state of the market.
“The pandemic assistance flooded the market with cash, so that didn’t help. Plus there was the demand for products during the pandemic and no supply to meet the demand,” said Fiorella. “I understand what the (Federal Reserve) is doing, but inflation will go down.”
Gugino said once the impact of inflation eventually does pull back, the door will open to sustained growth and market gains.
“If you’re fully invested, this would be the worst time to exit the market,” said Fiorella. “You don’t want to make any rash decisions on a short-term basis. … You’ve got to stick to your plan.”
In the short-term, there are still positives to come from the current state. Higher rates offer an opportunity for savers to net a decent, low-risk return. For anyone putting money aside, a bear market offers a chance to buy stocks on sale, which could lead to better future returns when the market recovers.
“If your long-term plan is set, you can ride this out. If you have cash on the sideline … it’s not a bad time to trickle some in,” said Fiorella.
Younger investors putting money aside for the future are in a good position at the moment, especially with prices dropping in the market.
“If you’re younger and you are putting money into a 401K or your retirement, continue to do so,” said Gugino. “Things are a lot cheaper than at this point last year. … If you’re younger and in that position, this is an opportunity.”
For those who are drawing off retirement, the rate hikes are not doing as much damage as it could be perceived. “If your portfolio is positioned properly, it shouldn’t be impacting you that much,” said Gugino.
Gugino noted that the most negatively impacted group are the people “that are barely hanging on,” financially, especially now during inflation. Gugino stresses that he knows how hard times are for people in that position, but that this will not last forever.
“I think we will be better next year. I think we will be choppy for the next three-to-six months,” Fiorella added.
An important thing to consider in a time like this is to find out if you’re really comfortable with the risks you’re taking with your investment portfolio. Fiorella and Gugino both stressed that at a time like this, meeting with your financial advisor is very important because the worst thing you can do is make a rash decision in a panic.
“It’s not a bad time to look at your portfolio, to not make any rash decisions with it, but to be smart and look at your allocation in the markets,” said Gugino. “What you don’t want to do is sell in a panic and miss out on any rebounds in the future.”
Gugino and Fiorella both believe the bottom line is simple: Federal Reserve rate adjustments and other factors have led to scary numbers at the moment, but it will get better over time.
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