What 401(k) Investors Need to Know: Market Update for Q1
Last year was a bumpy ride for the market, and many investors are rattled.
We’ve talked before about how the market goes up 80% of the time. But this also means it goes down 20% of the time.
And that’s where we are now.
So, what should you – the 401(k) investor – do right now? Keep reading to find out why we think you should stay invested and stay patient, and more about what we expect in 2023.
Bull and Bear Markets in Historical Perspective
It’s important to emphasize that bear markets are not uncommon. They happen about every 7 years or so, and the average drawdown or decline in a bear market is 37%.
And, historically, the average bear market lasts about 1.2 years.
On the flip side, the average duration of a bull market is 6.7 years and averages an increase of 362%.
But bear markets do cause an emotional stir. And sometimes it’s hard to think with your head rather than with your heart when emotions are stirred (especially if you’re constantly tuned into the talking heads and the 24/7 news cycle).
How well you fare in a bear market boils down to how you handle yourself during a market downturn.
The Thing about Inflation
One of the things that has caused the market to struggle last year was inflation.
The Fed got behind the eight ball and then started raising interest rates very quickly – in fact, very aggressively by historical standards.
Historically, the Fed has never raised 75 basis points, or three quarters of a point, more than once at a time. And this time, they did it at 4 consecutive meetings.
Data shows that inflation is coming down. However, the Fed has said that they need several months of evidence that inflation is coming down before it would change their current policy.
Keep in mind that the Fed has to stay very aggressive to try to get demand down and get inflation under control.
We would argue that we’ve already seen 5 months of inflation where we’ve averaged only 2.4%, and that inflation is indeed coming down.
Things May Not Be as Bad as We Think
At the end of December 2022, the Dow Jones was higher than it was going all the way back to February 23, 2022. If you ignore the first 1.5 months of 2022, the Dow Jones actually went up.
The S&P 500 is higher than it was going back to June 13, 2022.
And, where most of the damage is – the Nasdaq – where the growth stocks are, it’s still higher going back to October 11.
In the last 3 months of 2022, the Dow Jones average was up 15.39%. The S&P 500 was up 7.08%. And even the Nasdaq was down only 1.03%.
So we’re starting to see a little bit of stability, a little less volatility in the market.
There are other indicators to suggest we are near the end of this bear market.
Check out the video as Mark Sorensen, our Chief Investment Officer, provides a deep dive into Q1 and shows why he’s optimistic about the coming months.
About 401(k) Maneuver
401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance.
We review and rebalance your account for you with the goal in mind of keeping you in what is working and out of what is not.
With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.