Is The Stock Market Really Down? How To Manage Market Fluctuations

Join us today as we discuss how to manage market fluctuations in a time that appears to be experiencing some level of stock market volatility.

We discuss how to navigate stock market volatility and the impact of market downturns. The market historically experiences fluctuations but tends to rise most years. Therefore it is important to have diversification in a portfolio, with stocks, bonds, and cash balancing risk and reward. Remember that market reactions can be exaggerated in the media, and investors should focus on long-term financial goals rather than short-term market movements.

Understanding one’s overall financial situation, including other sources of income like pensions or social security, plays a crucial role in managing investment risk. Stay calm and maintain a steady, diversified investment approach for long-term financial success!

Resources:

- Link to JP Morgan Digital Guide to the Markets: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?slideId=equities/gtm-annualreturns

- Alliance of Comprehensive Planners: https://www.acplanners.org

- John's firm website: https://www.trinfin.com

-Find us on Facebook: www.facebook.com/friendstalkfinancialplanning

#ACPMemberWisdom #financialplanning #stockmarket #stockmarket2025

TRANSCRIPT:

John: The stock market has been super volatile this year and is down so far. What should you do about it? That's what we're talking about on today's episode of Friends Talk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. Before we talk about the stock market gyrations, please subscribe. That helps YouTube viewers find us. Okay, John, what are you telling clients about the stock market tanking?

John: Yeah, we're having a lot of conversations about it. I suspect you are too. It's on people's minds. It's interesting for me that we get about half the people saying, “Hey, things are on sale. How do we buy more?” And the other half is going, “Hey, where can I find more mattresses to hide all my cash and kind of bury my head right now?” So it's this yin and yang. And of course, when things are on sale, we want to buy them. That part of it is appealing. One of the things that I often go back to when it comes to the investment part of financial planning is just sort of looking at facts and looking at history and what's gone on.

We’ll put a link in the show notes to the J.P. Morgan Guide to the Markets, but one of the things I refer to often is a graphic that talks about going back to 1980. We've got almost 45 years of data, and the stock market is up on average three out of four years. But during the year the market is down at some time between January and December, it goes down an average of about 14%. And so, what that means is the market is up most of the time. If you're going to make a bet, if I'm going to flip a coin and somehow know that 75% of the time it lands on heads, listen, we'll bet a dollar every time we flip a coin.

How many times can we flip that coin, right? Over time, that's a winning proposition. But then we also take a look at that year decline when the market goes down on average about 15%, 14%. We haven't had that in two or three years. And so, when the market is down and, last I took a look, it was down 3% or 4% on the year, it kind of feels like, oh, my gosh, what's going on in Washington, what's going on in Ukraine, and what's going on in interest rates and tax law and all these stories.

And then for me, it's a matter of stepping back a little bit and going, “Oh, you know what? On average, we see this happen just about every year, and we haven't had one in a couple of years. So maybe this year we'll be down a little bit more at some point during the year.” It's sort of normalizing it and recognizing that this is something that happens. It's not necessarily something that’s different this time. I think that’s really helpful to think about.

Bridget: Right. And in my office, Luke talks about how valuations are still high. Maybe there're internal reasons why the stock market's high. And so, they call them corrections, and it's okay that the stock market goes up and down. That's actually what we expect from it. And it's been a nice run, but it goes up and down. The other thing I think is that when people say on the news the stock market's down, and then they talk about that for however many sentences, and then they probably don't talk about, oh yeah, but the international's up.

What I'm talking about with people when I'm looking at their portfolios is when they're talking about it, they're looking at these two lines, the large cap value stocks. That's the part of your portfolio that they're talking about, and they're not mentioning, or maybe they mention in one sentence, that these parts are going up. And they have no clue. Half of your money is in safe stuff; it's not even in the stock market. The pundits don't know that. They don't mention that. The amount of people who think, “I'm going to lose all my money,” in reality, is usually much reduced from what people's fear is.

John: Right. I just had a conversation about the exact same thing you were talking about. Somebody was saying, “Oh, stocks are down.” And I said, “Well, yeah, but we don't have just US large cap stocks. The S&P is certainly down.” So I found information from a place called First Trust, which puts out some good data.” And what's the date on this? Through March 15th, so that’s 10 weeks into the year.

The S&P 500 was down about 4%, but international stocks were actually up almost 9.5%. But you don't hear about that. I'm gonna start using that when people say, “Boy, the market's down.” I’ll go, “Really? I thought it was up.” We don't think about it. And there's a reason. The S&P 500 is, I don't know, something like 70% or 80% of the world economy.

Bridget: Yeah, I think it’s less.  

John: But it drives a lot of things.

Bridget: Right.

John: So it's not like it's wrong to look at that, but that's not the entire story. And I don't know your clients, but we don't have all of our money in those places.

Bridget: Right.

John: And so you take a look at having that diversification. And I will tell you, last year, when the S&P 500 was up 25% and our clients have international stocks and those things were up like 4%, you're looking at that going, “Man, that was a stinker.” Now you go, “Yeah, but the tradeoff is now S&P is down, and those things are up.” That's why we have this diversification. And so, just looking at some of the facts sometimes can be really helpful in thinking about the statement, “Oh, stocks are down.” Well, some stocks certainly are down, but not all stocks.

Bridget: Right. And going back to the basics, like you were saying about your diversification, is critical. But another thing is how much risk are you really taking? So when we look at portfolios, there're 10 different items that we look at to figure out how much risk people should take. And one of those is, how do you feel about it?

John: Yeah.

Bridget: Okay, so if somebody's saying, “I should sell things.” I reply, “Well, are you saving less?” “No, I'm still saving 12% of my income.” “Okay. Do you have any more dependents?” “No, I don't have any more. Actually, one of mine is no longer a dependent.” “Do you have your own business? Are you taking more risks in other places?” “No, I just sold my rental property.” So when we look at it, how you feel about it is one factor, but there're other factors that are equally important.

The other thing is as you retire, as you get going from “I'm working and bringing in some money” to “I'm totally retired,” generally people feel more conservative, and a portfolio should be more conservative. But that doesn't mean no stocks because usually if you're 70, you might live another 30 years. And so, the stock market should go up in those 30 years.

I feel safe in saying that the stock market will probably go up in those 30 years, and you will probably want some of your money—not all of it—in the stock market. And you want to have some safe. So that you have 10% or 15% years of spending that's just there. It's not even on the table in the stock market. So I just want people to take a larger picture and say, “Oh, I gotta strap in and hang on for this.”

John: Right. I love that idea you brought up. It's not just about investment risk. It's about life risk. What risks are you taking overall? And it's not just what happens in the US large cap stocks. Do you run your own business? Well, that's riskier and would lead to a more conservative investment portfolio.

Bridget: Right.

John: Are you're retired and on a pension that's secure? Maybe you can take more risk in the stock market. It's life. It's not just this pocket of investment dollars. It's all my dollars and all my financial planning that goes into it. And it's easy to lose track of that over time.

Bridget: Right? Absolutely. And I think that people underestimate this cash flow positive. If you've got a pension or if you've got Social Security, well, that money's coming in, and so that actually lowers your risk. That’s low risk.

John: The other thing you brought up that I just wanted to circle back on is that idea of most people aren't all in stocks and certainly if they were, they wouldn't be all in U.S. stocks. And we just had a conversation recently. It's kind of scary when you read the news, but if you have half your money in bonds and cash and half your money in stocks, only half that money is subject to what's going on in the market.

And if the market things are divided into international and US, only a fraction of your money really is in that S&P500. And I go back to that idea of thinking of investments as a farmer or a gardener. You get your crops out in the field or out in your garden, that's where you make money, but that's also where you take risks, because you might have a flood or a drought. And when you have good years out in the garden, you can some of that, you put it in your pantry, and that's where those bonds come in and the cash comes in.

And your pickles don't grow very much in your pantry, but they also don't go away. They're there when you need them. And as you just said, oh, wait a minute, only half my money's even in the market in the first place. And most of that's not in U.S. large cap stocks. Again, just looking at those facts can be really helpful.

Bridget: And so, you're saying, back out in the fields, you don't have everything in one crop. You at least have a couple of crops, and you got some cows and some chickens, etc. So yeah, it's not all in one thing. All of your eggs are not in one basket for most of our viewers. And if they are all in one basket, then this is a wakeup call for you.

It might be a good time to evaluate, and say, “Okay, maybe I should spread it out.” But then next time when internationals down, don’t say, “Oh, time to go back to the U.S.” That's, that's not the approach. It’s just slow and steady, while diversified. And the research is that that's what pays off the best.

John: That's right. That's a great place to wrap things up. Here again, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. John and I are both proud members of the Alliance of Comprehensive Planners. We're both taking clients, but if you're looking for an advisor that's in your area, you can check out acplanners.org.

John: And don't forget, hit that subscribe button.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.