The extreme market volatility investors have experienced in 2022 can give those in the market for the long term, especially retirement savers, serious pause. While the S&P 500 was in bear market territory in mid June, year-to-date, stocks are down 10%, and over the trailing 12 months, they’ve lost 6.12% of their value.

Retirement plan and wealth advisers consistently tell their clients to stay the course. Newsmax Finance Editor Lee Barney recently spoke with Sara Gelsheimer, senior wealth manager at Plancorp, to find out what she is telling her clients now.
 

Newsmax Finance: Are your clients concerned about the extreme market volatility and declines, and if so, what are you telling them?

Sara Gelsheimer: We try to talk a lot about what to expect in the stock market as soon as someone becomes a client. We show them the historical range of returns for various portfolios so that going into it, they know what to expect. Declines in the market are a very normal experience – investors have been paid nice returns for withstanding volatility. Without risk, there’d be no return.

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“Having money in the stock market tends to be a good long-term hedge against inflation. And keeping a good cash buffer is something I’d recommend if you live off your portfolio. As well, you may have to cut back on spending.”
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Of course even with setting these expectations (and reiterating them over and over throughout time), it is human nature to be concerned when markets go down. So during these periods of volatility/declines, we remind them that their long-term plan takes into consideration times like now.

When we run a client’s financial independence analysis, we run a Monte Carlo analysis which runs thousands of trials with varying market returns, including returns like we’re currently experiencing. So, we either reassure them that their plan is still a very viable one or discuss some minor tweaks they may need to do to get back on track.

As an additional protection, for clients who are retired and living off their portfolios, we encourage them to keep 18-24 months’ worth of cash on hand so that during times like we’re experiencing now, they are not forced to sell while the market is down.

Their portfolios also have bond funds they can access, if needed, which are generally more stable than equities.

Overall, humans want to feel a sense of control. During market declines, it’s human nature to want to do something. But the reality is, for most investors, the best thing to do during a down market is absolutely nothing.

Staying the course is tough, but doing so increases your chances of having better outcomes than those who try time when to get out and back in.
 

Newsmax Finance: What is your outlook on inflation in the U.S. and the chances of a recession? Are there specific types of defensive investments that you would advise investors to make at this time?

Sara Gelsheimer: I’ve seen firsthand (a number of times) how impossible it is to predict the stock market. Similarly, I think it’s incredibly difficult to predict where inflation will be in the coming months or whether or not we will officially be in a recession. So, I’m not going to try to!

There’s nothing I would tell clients to do any differently regardless of whether inflation continues to be high or whether we go into a recession.

Having money in the stock market tends to be a good long-term hedge against inflation. And keeping a good cash buffer is something I’d recommend if you live off your portfolio. As well, you may have to cut back on spending during times like now but otherwise, there’s no hot investment I’d recommend that is inflation or recession-proof.

Newsmax Finance: Are there any specific stocks or sectors that are worth a short- or long-term investor’s consideration?

Sara Gelsheimer: There’s been a lot of attention on I Bonds recently. These are a type of savings bond designed to protect an investor’s cash from inflation, and they are certainly paying nice returns right now (over 9%), but there are some considerations to keep in mind (like needing to keep the money invested at least one year – and if less than five, you will forgo the previous three months of interest; the interest is only guaranteed for six months; there is a limit of $10,000/person; and they must be purchased directly through the Treasury website, etc.

In addition to I Bonds, online money market accounts can be another option for places to park cash for short-term needs. But for the long-term, I’m a big believer in having a very diversified, low cost, portfolio of stocks and bonds.
 

Newsmax Finance: Any other parting thoughts?

Sara Gelsheimer: Some of the best days in the market tend to occur during bear markets, so staying the course is so important (as hard as it can be). Try to reduce your anxiety by turning off the news and not looking at your portfolio.

As long as capitalism continues, we will see the market come back, and those who stay the course will be rewarded.