Markets: In or Out?

2/15/2022 - By Mark Hemby, CFA

Looking back at 2021, we learned the valuable lesson of establishing a strategy and staying invested. Since the pandemic started in March 2020, there has been no shortage of bad news. However, equities had a calendar year return of 21% in 2020, and markets followed up with an equity return of 26% in 2021. When it looked like it was a time to panic, getting out of the market would have been one of the worst moves. Now, 2022 brings a new set of challenges.

Markets have experienced volatility to start the year, but price movements don’t mean it’s time to abandon ship. Prices move as investors incorporate the information, good or bad, and reflect their expectations about the future in their trades. Uncertainty also impacts prices, but while we tend to avoid the unknown, uncertainty is a persistent characteristic of investing. For an investor to earn above the “risk-free rate” they must weigh the tradeoff of taking on some level of risk. During new market highs or lows, it can seem like a bad time to invest. However, a strategy you can stick with based on your goals and tolerances can help tame this anxiety. By understanding that uncertainty is an unavoidable component of investing, you can avoid reacting emotionally.

When the stock market is down for days or even months, it is natural to question how long it will continue. But while turbulence may be frightening, it shouldn’t be unexpected. From 2001 to 2020, intra-year declines of the US Market ranged from 3% to 49%. While the declines were certainly scary, 16 of those 20 calendar years had positive returns.

Some investors look to time their buying and selling, based on these annual market fluctuations, hoping to sell out of their equity positions at the “top” of a market and move to cash waiting for the market to fall. Unfortunately, no one knows when markets are at their tops or bottoms in the moment and predicting these events accurately involves a tremendous amount of luck. Even if an investor was lucky on the initial sell trade, they must precisely time when to get back into the markets. Being out of the market during that time can lead to increased anxiety and decreased wealth. Moving away from equities to cash lowers expected returns. If someone is unable to perfectly time being out of the market, holding only cash can eat away at purchasing power due to inflation. While the stock market’s returns are impossible to predict, history supports an expectation of positive returns in the long term. 

The Federal Reserve predictions and crypto movements have made headlines recently. However, we believe the market is forward-looking, and investors may have already priced in this information. Also, a major event in one market may not have the same impact across multiple markets, which is a reason to diversify globally. 

You likely don’t have power over what the Fed will do, what headlines are saying or what returns will do in the short-term, but don’t let that get you down. Focus on what you can control: diversification, asset allocation and tax efficiency.


Make a plan. Consult one of our trusted advisors to provide you with a dependable investment philosophy and develop a plan based on unique objectives and risk tolerances. Prudent financial plans, proper diversification and discipline can help investors endure market movements. 

About the Author | Mark Hemby, CFA®

Mark is a financial advisor for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He holds a Chartered Financial Analyst (CFA®) designation and as part of our investment advisory group, he works with clients to develop and implement investment strategies to achieve financial freedom while also ensuring their goals and objectives are aligned. Mark has over 15 years of experience in investment banking working with individuals and organizations to manage their portfolios and coordinate investment activities. In addition to his experience with fixed income trading and sales, Mark owned and operated his own business in Alabama.

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