Staying the course in 2022

Many factors are combining this year to create more market volatility than we’ve seen in recent years. With Russian troops invading Ukraine, the spiraling refugee crisis in Eastern Europe and massive economic sanctions on Russia all coming in the last week. Add that on top of the Omicron variant spiking quickly through the US earlier in the year, widespread global inflation, and rising interest rates—these are just a few pressures that have already affected investors and markets.

What’s been happening in capital markets?

Investors and markets tend to reward certainty and stability. However, the world news all around us has felt anything but certain and stable so far in 2022 and the markets have been on a roller coaster. What’s making investors so skittish?

The news in Ukraine is an extreme X factor. Aside from the major humanitarian and political implications of a land war between Russia and Ukraine, Russia is one of the top producers of commodities in the world including natural gas, oil, nickel, coal, wheat and more. Disruptions — whether because of production or sanctions — will add more pressure to commodity and energy costs and the global supply chain and inflation.

The pandemic continues on a slower burn and the virus—and policy—is shape-shifting. At this point, it’s unclear how these two things could continue to affect everything from labor to education to the global supply chain.

On the supply chain, you have already paid more for everything from food to services with Americans facing an extra $276 in monthly household spend, according to the Wall Street Journal. The Federal Reserve is planning to increase interest rates later this month to pump the brakes on inflation.

What does this mean for you as an investor?

We know it’s never fun to watch investment balances slide backward, however, this is a cyclical part of investing where risk and reward collide. While it's always good to have regular check-ins with your investments, here are some guides for your review — and context for thinking about what’s next.

1. Check your risk tolerance

A well-diversified portfolio can offer checks and balances to market volatility, and you also have some control over how much exposure you have to risk and reward. Whether this is the first market swing you have experienced or the 10th, you can take this moment to see whether your risk level is set at a place that will get you where you want to go in terms of growth, but also at a level where you can tolerate the swings. There’s no perfect answer—it’s a combination of your financial goals, your timeline, your other assets and how well you handle the emotional ride associated with risk.

2. Consider staying invested through volatility and keep investing

With a 401(k) plan, you are investing for the long term and the peaks and valleys of a 30-year (or more!) investment average out over time. We believe that an appropriate strategy for 401(k) plans is to continue to invest regularly into retirement through regular payroll contributions. By doing so, you utilize the power of dollar-cost averaging— investing a fixed amount of money at regular intervals over a long period. This enables you to buy shares at different price points, smoothing out your returns over time.

3. Remain focused on the long term because most retirement investors are looking at decades of investing

When the markets go lower, we go higher. In other words, it’s a good time to close the browser on your account portal and take a step back for the high-altitude view. Forecasts and simulations take into account long-term volatility and if you have your risk tolerance and diversification set and contribute consistently, you’re still likely to meet your investing goals over the longer term. No matter what the markets are doing, at Guideline we continue to do our job of rebalancing your portfolios and monitoring our model portfolios to help keep you on track.

Special thanks to Catherine New for her work on this post.