As the heart rates of many investors seesawed in recent days to coincide with wild swings in the stock market, Chippewa Valley financial advisers urged their clients to stay calm.
Even after Monday’s 1,175-point plunge in the Dow Jones industrial average, local investment professionals said the main message they shared with nervous investors could be boiled down to one word: perspective.
Chris Hasenberg, owner of Hasenberg Financial Group in Eau Claire, pointed out that Monday’s sell-off — the worst day for stocks in 6½ years based on percentage — combined with a 666-point drop on Friday only set the stock market back to about the point it was at on Christmas after an unusually strong 2017.
“Right now, as of this moment, the stock market is still up 23 percent over the last 12 months,” Hasenberg said shortly before the Dow closed Tuesday afternoon up 567 points to 24,912.77, making up almost half of Monday’s 4.6 percent loss.
Andrew Schlafer, a financial adviser at Robert W. Baird & Co. in Eau Claire, also urged investors not to panic. Historically, he said, market corrections of 10 percent or so happen about once a year and drops of 20 percent occur about every three to five years.
“This one kind of caught some people off guard because we’ve had very little volatility in the last year and a half,” Schlafer said.
While few people were predicting a dip of the suddenness and magnitude of Friday and Monday, the Federal Reserve did forecast a correction last week, so a pullback shouldn’t have been a total surprise, said Thomas Kemp, chairman of the economics department at UW-Eau Claire.
The Fed’s projection of rising inflation and the need for further gradual interest rate hikes this year were contributing factors, Kemp said, explaining that inflation has the potential to eat into corporate profits and stock prices are based in part on future corporate profitability.
“From that sense, a correction is a rational response,” Kemp said. “It’s what you would expect.”
Monday’s record-setting drop (based on points) came on the first day on the job for new Fed Chairman Jerome Powell, who replaced Janet Yellen. Day two brought the big gain, but only after a day of volatility that included the Dow swinging 1,167 points from its low to its high. The Dow is now up 0.8 percent for the year and 6.4 percent below its Jan. 26 peak.
All three of the local financial analysts said people should not buy or sell stocks in their retirement accounts based on the daily movements of the market.
“I wouldn’t want anybody to come away from all of this thinking they should freak out and sell everything,” Kemp said.
Schlafer said he got several calls Monday from uneasy investors and called several other clients just to reassure them. Most of them already knew his advice would be not to overreact to a couple of bad days for the market, he said.
A key is to build what he calls an “all-weather portfolio” — a diversified basket of investments in which some parts go up to ease the pain when stocks go down — instead of trying to time the market, Schlafer said.
“You definitely don’t want to panic and sell out of the market right now,” he said, reminding investors that corrections are normal and healthy and help to bring stocks back to an appropriate price.
Hasenberg agreed, emphasizing that he believes the fundamentals behind the market still look good and thus the recent volatility doesn’t appear to signal the beginning of a long-term bear market.
“We might have to get used to a little volatility again,” Hasenberg said. “It’s not a bad day or a bad week or even a bad couple of months that’s going to wreck a retirement plan. It’s that bad year and a half that you hope to avoid.”
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