Stock market volatility has increased in recent weeks, but GuideStone Chief Strategic Investment Officer David S. Spika cautions retirement investors to focus on their long-term investment objectives and not allow dramatic headlines to prompt investors to make impulsive decisions, even as the news of the day can appear alarming.
The recent sell-off in financial markets is a needed correction, Spika noted, but does not signal the onset of a near-term economic recession.
“Economic growth is still too strong to indicate a recession is on the horizon,” Spika said. “As we’ve been saying for many months, the increased volatility we’re experiencing is warranted. What we’re seeing is to be expected at the tail end of the longest bull market in history, now more than a decade long.”
Even with the headlines and social media posts noting the markets’ moves every second, volatility as measured by the VIX is at 22, well within the normal range, historically speaking.
As of the Friday, December 14 close, the S&P 500® Index was down 11 percent from its September 21 close. Notably, if the S&P 500 ends 2018 with a negative total return, it would mark the first time since 2008 for such an occurrence.
The key factor influencing the market volatility at this time is concern about the impact of continued Federal Reserve rate hikes — a necessary process given the steps the Fed took following the recession of 2008, when it cut rates to a range between 0 and 0.25 percent and left them at that historically low level for several years. As a result, even the hint that the Fed may pause its rate hike cycle, which may come at the December 18 and 19 FOMC meeting, could send stocks higher, Spika said.
“We have expected heightened volatility, relative to the last several years, in the markets,” he said, “but this is only a return to historic norms and not something investors should lose sleep over.”
GuideStone President O.S. Hawkins said retirement investors should keep the long view in mind.
“Markets have historically rewarded those who don’t try to time the markets,” Hawkins said. “It’s important to have a properly diversified portfolio with risk- and age-appropriate investments.”
One approach offered by GuideStone® to retirement plan participants is the target-date MyDestination Funds®. Investors choose the Fund that is closest to their retirement date and make consistent, appropriate contributions. The Fund automatically becomes more conservative as the target date approaches.
“We have consistently encouraged our retirement plan participants to keep four principles in mind during periods of market volatility and uncertainty,” Hawkins said. “First, always focus on your objectives, not the emotions brought on by the day’s or minute’s headlines. Second, don’t make impulsive decisions. Third, don’t count gains or losses — consistent contributions to a retirement account afford investors a systematic way of taking advantage of opportunities as the markets ebb and flow. Finally, maintain realistic expectations about market behavior. The day’s social, political and economic events will affect the markets in the short term. However, historically, the markets have returned to profitability over the long term.”
Spika said that volatility will likely continue next year.
“With a divided government in Washington, concerns about trade wars, the fading impact of the recent U.S. tax cuts and the continued impact of Fed tightening, we can expect volatility, both upward and downward, to continue and perhaps increase in 2019,” Spika said. “That is not cause for alarm, nor should it shift retirement plan investors away from their long-term investment strategy.”
The MyDestination Funds® (“Funds”) attempt to achieve their objectives by investing in the GuideStone Select Funds and other investments. The Funds are managed to a retirement date (“target date”) by adjusting the percentage of fixed income securities and equity securities to become more conservative each year until reaching the retirement year and then approximately 15 years thereafter. The target date in the name of the Funds is the approximate date when an investor plans to start withdrawing money. The expense ratio for the Funds includes the expenses of the underlying Select Funds. The principal risks of the Funds will change depending on the asset mix of the Select Funds in which they invest. You may directly invest in the Select Funds and other investments. The Funds’ value will go up and down in response to changes in the share prices of the investments that they own. The amount invested in the Funds is not guaranteed to increase, is not guaranteed against loss, nor is the amount of the original investment guaranteed at the target date. It is possible to lose money by investing in the Funds.
You should carefully consider the investment objectives, risks, charges and expenses of the GuideStone Funds before investing. A prospectus with this and other information about the Funds may be obtained by calling 1-888-GS-FUNDS (1-888-473-8637) or downloading one. It should be read carefully before investing.
Roy Hayhurst is director of denominational and public relations services for GuideStone Financial Resources of the Southern Baptist Convention®.
Director of Denominational and Public Relations Services
GuideStone Financial Resources of the Southern Baptist Convention
Roy.Hayhurst@GuideStone.org | (214) 720-2141