Major U.S. equity markets have endured significant volatility thus far in 2022, while the S&P 500® Index has fallen 14% since the beginning of the year.
A mixture of risks, including tightening monetary policy courtesy of the world’s central banks, rising interest rates, continued labor shortages and sustained high inflation, along with geopolitical risks from China and the Russia/Ukraine war, are helping to drive markets down.
“We are in a time of great economic uncertainty with greater volatility likely over the near term given the headwinds we’re facing,” GuideStone® Chief Investment Officer David Spika said. “It’s important to note that U.S. stock markets have risen 25%+ over each of the past three years, and such gains are not sustainable over the long term.”
In fact, the S&P® 500 Index has averaged a total return of roughly 10% per year historically.
Inflation has captured the headlines, especially on prices for food and fuel. The Consumer Price Index hit an annualized rate of 8.3% in April, the highest in 40 years. Fuel prices at the pump exceed $4 a gallon in all 50 states, though still below the inflation-adjusted average experienced in 2008.
The current market, while jarring, is not a time to make asset allocation decisions based on the moment-by-moment headlines in our social media feeds, Spika noted.
“The best strategy is to stay committed to your current asset allocation, especially for retirement investors in a MyDestination Fund,” he said. “Long-term investors are best served by riding through volatile periods because no one can predict the market and when it will turn positive.”
GuideStone investment managers are proactively managing the MyDestination Funds®, as well as the underlying Select Funds, to help limit losses, Spika said. This is done by reallocating within the funds in order to increase exposure to more defensive securities and sectors.
Investors should stay focused on their long-term objectives.
“GuideStone has consistently encouraged people to not try to time the market — selling during periods of decline or volatility and trying to buy back before the market takes off again,” GuideStone President Hance Dilbeck said. “This often leads to buying high and selling low, which can hurt a retirement investor in the long-term.”
Spika echoed those comments and notes that rallies occurring during stock Bear Markets average 15%. Anyone timing the market is likely to miss these rallies.
“Over the long term, the markets have rewarded investors who have stayed focused on their objectives, invest in a portfolio appropriate for the investor’s time horizon and risk tolerance and made regular, consistent contributions,” Spika said.
While market volatility has been exacerbated this year, mid-term election years are commonly times of volatility and lower returns. Since 1962, mid-term election years tend to be especially volatile, with the S&P 500® index falling 19% on average at some point during the year. However, Spika noted, the S&P 500 has not produced a negative return during the 12 months following a mid-term election since 1946.
Spika noted that GuideStone, like many investment firms, expects the U.S. to enter a shallow recession in 2023. While recessions usually lead to slower economic growth and job losses, they also tend to reduce imbalances that have built up, such as excessive inflation and surging house prices. Recessions also normally force the Federal Reserve to begin lowering interest rates, which is favorable for stock and bond prices.
While asset allocation changes driven by emotion due to the headlines are never wise, reviewing accounts annually and making strategic changes can be appropriate. To that end, GuideStone offers a Retirement Planning and Guidance page (GuideStoneRetirement.org/InvestmentAdvice), including GuideStone’s Investment Recommendation tool.
Asset allocations are automatically reallocated for those invested in GuideStone’s target-date family of funds, the MyDestination Funds.
GuideStone recommends four basic principles for retirement plan investors during market volatility.
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
There can be no guarantee that any strategy will be successful. Diversification does not ensure a profit or protect against a loss. Investing in alternatives presents the opportunity for heightened volatility and may not be suitable for all investors.
In addition to his or her retirement age, an investor should consider other factors, including his or her risk tolerance, personal circumstances and complete financial situation. The Fund is not guaranteed, and it is possible to lose money by investing in the Fund at any point, including after the target date. The use of glide paths that show the Fund’s allocations at different points during the Fund’s time frame are not guaranteed and can change without notification. The intended percentage allocations of a target date fund among types of investments may be modified without a shareholder vote.
The MyDestination Funds (“Funds”) pursue their objectives by investing primarily in a diversified portfolio of GuideStone Funds® Select Funds that represent various asset classes. The Funds are managed to the specific retirement year included in their names and assume a retirement age of 65. The target date in the name of the Funds is the approximate date when an investor plans to start withdrawing money. Over time, the allocation to asset classes will change according to a predetermined “glide path” that adjusts the percentage of fixed income securities and the percentage of equity securities to become more conservative each year until approximately 15 years after the target date. The Funds may be suitable for investors who want a simplified “one fund” retirement solution, are willing to pay slightly higher fees to get a diversified mix of investments that becomes more conservative over time, and plan to retire at an age that is near the year listed in the name of the Funds. By investing in the Funds, you will also incur the expenses and risks 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. 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.
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 at GuideStoneFunds.com/Funds. It should be read carefully before investing.