The Market Sell-Off In Perspective
Today, the Dow Jones Index fell 1,060 points (3.1%) and the S&P 500 index fell 3.6%. Year-to-date, the DJIA and SPX indices are down 9.2% and 13%, respectively. Investor sentiment and market commentary are extremely negative...is it time to pull out of the markets?
We recognize how disconcerting it is to watch the market pullback and hear the high volume of negative news. However, times like this are when investors must be disciplined and hang tight. We have been through this before...
Recall March 2020, the S&P 500 declined more than 15% between March 11 and March 12, and then continued to decline by 30% through March 23rd. One year later, the S&P 500 is up close to 80% from the March lows.
One client came to us kicking himself for selling during the lows and missing the subsequent rebound.
At times like March 2020 and today’s market pullback, it’s important to assess whether your portfolio is invested with the appropriate asset allocation (the amount allocated to different asset classes). A lower risk tolerance and/or a shorter-time horizon require a less aggressive asset allocation. A higher risk tolerance and/or a longer-time horizon can accommodate a more aggressive asset allocation. Other factors also come into play, and the final investment portfolio incorporates all of these variables.
At Refresh Investments, we take great care to understand our client’s risk profile, time horizon, and financial goals so we may determine the best strategic asset allocation for his/her investments. The portfolio is then designed to ride out market volatility and the different stages of the economic cycle. An investor’s financial profile may change over time, which is why asset allocation needs to be continuously evaluated.
Experiencing market days like today is unpleasant, but knowing your assets are positioned appropriately should help keep anxiety at bay. The appropriate allocation positions the investments suitably for market downturns while generating the growth or income needed from the portfolio. It is a critical element of investing.
Pamela Chen is the Founder and Chief Investment Officer of Refresh Investments LLC, a fee-only financial planning and investment management firm located in Santa Monica, CA serving clients throughout the great Los Angeles area and the United States.
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