After stocks finished their worst week since April 2020, investor uneasiness is understandable. The tech-heavy NASDAQ index lost 7.6% last week, and the broader S&P 500® index ended down 5.7% for the week.
While moment-by-moment headlines can be jarring, the best plan for retirement plan investors is to focus on their long-term objectives, not those headlines, GuideStone® experts said.
“The market expects the Federal Reserve to begin raising interest rates in the next few months,” Chief Investment Officer David Spika explained. “Higher interest rates generally lead to less money in the overall economy, which the market is reacting to.”
Given the Federal Reserve’s likely next steps, the markets’ reaction was not unexpected.
“This is a needed reduction in valuation,” he said. “Stock values have been propped up by Fed policy since the middle of 2020. That was not sustainable.”
Markets are cyclical, Spika said, noting that the S&P 500 was up 27% in 2021, 16% in 2020 and 29% in 2019. Since 1962, mid-term election years tend to be especially volatile, with the S&P 500 falling 19% on average at some point during the year.
“A pullback like this is often very healthy for the market,” Spika said, adding that market declines in mid-term election years are normal. However, the S&P 500 has never produced a negative return during the 12 months following a mid-term election.
While the run-up in stocks in the last three years might leave investment allocations lopsided, any changes in allocations must be strategic, not a reaction to the news.
“There is no recession on the horizon, so no bear market is expected,” Spika explained, adding that market watchers look at the difference in yield between corporate bonds and U.S. Treasury securities, which remain tight; widening spreads could signal a recession.
“The market drops so far in 2022 have allowed retirement plan investors who regularly contribute to their accounts to do so at slightly lower valuations,” said Brandon Pizzurro, director of public investments at GuideStone. “This is all part of the wisdom of regular, consistent contributions to a retirement plan.”
Retirement plan investors who want to make sure their fund allocations are age-appropriate can use the MyDestination Funds®, which provide a diversified asset allocation that gradually becomes more conservative as participants approach and move through retirement. Simply choose the Fund closest to your expected retirement date, and GuideStone will manage the fund allocation.
Investors also can choose to work with a personal advisor through GuideStone Personal Advisory Services®, which will work with investors to develop a portfolio aligned with the investor’s risk tolerance. For more information, visit GuideStone.org/GPAS.
“Making moves during down markets can be risky as it can lead to ‘locking in losses,’ GuideStone President O.S. Hawkins said. “It often leads to buying high and selling low when one tries to capitalize on short-term gains rather than following a more disciplined, long-term approach to investing. No one can predict what the market will do tomorrow, so focusing on your long-term goals is the key to riding out periods of market volatility. You can’t sell yesterday’s loss or buy yesterday’s gain. Stay focused on long-term objectives and keep your eye on your goals.”
For free resources, including the Retirement Planner Calculator and the Retirement Income Estimate tool, visit GuideStone.org/InvestmentAdvice.
Investing involves risk, including the potential loss of principal. The Funds may experience negative performance, and past performance does not guarantee future results. There can be no guarantee that any strategy (risk management or otherwise) will be successful.
The NASDAQ Composite Index is a large market-cap-weighted index of more than 3,000 stocks, American Depositary Receipts (ADRs), and real estate investment trusts (REITs), among others.
The S&P 500 Index is a market capitalization-weighted equity index composed of approximately 500 U.S. companies representing all major industries. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of its constituents. “Standard & Poor’s®”, “S&P®”, “S&P 500®”, “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by GuideStone.
GuideStone Personal Advisory Services is a fee-based service available to investors in personal investment accounts and non-ERISA retirement accounts offered by a GuideStone affiliate. An advisory fee for the service is assessed quarterly and based on total assets in the account. These fees are in addition to the underlying mutual fund fees. Advisory services are offered through GuideStone Advisors, an SEC Registered Investment Adviser. GuideStone Advisors is a controlled affiliate of GuideStone Financial Resources®. For more information about the firm, products and services, please review the GuideStone Affiliate Form CRS.
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.
Director of Denominational and Public Relations
GuideStone Financial Resources of the Southern Baptist Convention
Roy.Hayhurst@GuideStone.org | (214) 720-2141