In this month’s edition of “Money Matters,” Scott Oeth talks about market volatility, and how to invest in a challenging market that is changing course on a seemingly daily basis.

Money Matters: Investing During Market Volatility

0:00:00.0 CJ: WTIP is pleased to bring you another edition of Money Matters, a monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He's taught retirement planning and wealth management strategies to hundreds of financial professionals, and he joins us now by phone. Good morning, Scott.

0:00:22.7 Scott Oeth: Hey, good morning, CJ.

0:00:24.2 CJ: Nice to talk with you again. It's safe to say there's been a lot of turmoil in the markets the last couple of weeks. Can you give us an idea of what's going on?

0:00:34.4 SO: Well, I'll try, I'll share some thoughts. It's a interesting start to 2022. It's a reminder for us that markets can go down as well as up. These are just my observations as always, not intend to be specific advice, which I really encourage people to seek out on their own. But I think we're at a point where we've had three years of big stock market returns, and there's certainly been some volatility in there, but this recent shake-up I think is really bringing some questions to mind for investors. Is this an overdue short-term correction in some of the more speculative areas of the market? Such as growth and technology stocks, which really took a beating over this past month, or should we really pay attention? Is this something bigger, something more fundamental? It could signal a broader decline in the overall market.

0:01:28.8 CJ: And so that being said, where do you fall on that spectrum?

0:01:33.4 SO: Well, it's interesting. I think if we look at a couple of the key points or conditions and say, "What's causing this?" And yeah, we don't know for sure, we never do. Urge extreme caution around anyone who says they do know exactly, but some observations. There are some areas where we have what could be absurd bubble-like conditions. Everything is up, stocks are up, bonds are up, real estate is up. That's something to take notice of, and some of the things that we've talked about before, a couple times, CJ, on these episodes are more expensive holdings from a fundamental valuation standpoint, have really outperformed cheaper ones. Obvious areas, the real high-flying, soaring big technology company stocks, they've come to really dominate S&P 500 returns. That's something to note, and that really is where a lot of the volatility was. It's not necessarily the market overall, but that's where there's quite a bit. And then there's a lot of holdings that I'm somewhat reluctant to use the term, "Asset," but the thing is, people put their money into crypto, special purpose acquisition companies, NFTs, the mean stocks, IPOs. And those have had soaring rises of people, poured money into those. That's there, that trend has really begun to reverse in 2022. It seems that there's a lot more attention being paid to actual valuations of holdings, and people want to know where their money is going.

0:03:04.5 SO: That's one condition, and I think we have to look at Federal Reserve factor. They are easing, ending, they're easing their asset purchases, and they maybe raising interest rates. That's certainly gonna have a consideration. And there's a potential recession risk. Sometimes central banks get these things wrong, and they tighten too quickly and that slams the brakes on the economy. Gliding into a slowdown, that's an issue. Of course, there's inflation, we've talked about that before, geopolitical risk. A lot of people are looking at what's happening in Ukraine and Russia and what that could do, and you look and say, "Russia have spiked like, 40% of Europe's gas." If there's a conflict there, if there's a war, if there's shortages, that could just really add to the inflation mix overall. And, of course, we can't forget about COVID. It seems Omnicron might be peaking, but it is still hurting with labor shortages and supply chain issues. There's kind of a whole list of things that could be causing, or maybe the combination of factors are combining some of this market volatility.

0:04:19.7 CJ: And then how's your crystal ball these days, any thoughts on how long this volatility is gonna continue? Or any advice for our listeners that are trying to stay the course or not panic?

0:04:32.9 SO: Well, still looking to upgrade that crystal ball. Really happy with with how it's performed in the past, but I think there are some things that we know. We can look at long-term investing history and use that as some guidance. The market may actually be adjusting to a new environment with all those considerations we've laid out. And even with these uncertainties, I'm optimistic in the long-term as always, but I do think it would be prudent for people to prepare. We may have a period of subpar returns and potential future market shocks. I'll tell you what CJ, that's kind of always my position, not kind of, it is always my position. Long-term optimist, but expect volatility, expect downturns in the short term. But I think at this point, one real key step, if there's one big takeaway is, it'd be a great time to review your asset allocation, your investment mix, whether it's in your IRA, or your company retirement plan or other holdings, and not just look at the mix of stocks and bonds.

0:05:31.9 SO: That's kind of where most people stop. But within those categories, the types of stock asset classes and bond categories that you own, because we're really seeing now, and what I suspect this could continue a market difference between stocks that are considered growth stocks to the ones that are considered value stocks and bonds that might be long term bonds versus short term bonds, and bonds with different types of credit qualities and maturities. And so if you're not familiar with these concepts, great time to seek professional advice or get a professional second opinion. I think in general, it makes sense for most people to stay in the game. But now especially might be a real good time to pay attention to how you're playing the game and the details within those broader mixes.

0:06:21.9 CJ: Okay, well, the take away then is long-term optimist, but do your homework.

0:06:27.4 SO: That's right, yeah, I think so.

0:06:29.2 CJ: Alright. We're talking with Scott Oeth, we'll be talking finances with Scott again on the first Wednesday of the month on North Shore Morning. Anything you'd like to add, Scott?

0:06:39.4 SO: I think, I enjoyed the call, as always CJ. And I know you have archives on the site, some of our past discussions where we have talked about some of these issues in more detail, like inflation and mean stocks and market volatility. There is a library there. I post them also on my website, scottoeth.com. And happy to talk to folks with their specific questions too.

0:07:00.6 CJ: Well, thanks for taking time to talk with us today.

0:07:03.4 SO: Thanks, CJ.