QUESTION: I’m hearing all this talk about recession, which makes me worry that my investment strategy is too optimistic. What should I do?

ANSWER: It’s ugly out there. With stocks and bonds, all investment strategies seem to be floundering, even the conservative ones. And as corporate earnings weaken and interest rates rise, the market selloff might not be over. What’s even worse is the selling is based on deteriorating fundamentals, not a capricious panic. So, counting on the market to simply bounce back from its current lows might be overly optimistic.

Does that mean you should sell too, horde the cash and wait for things to get better? You could, but that’s a very risky strategy. Not all surprise events are bad, and we could still see positive developments in the second half of the year that nobody foresees—peace breaking out in Ukraine, supply chains improving, or oil production expanding and gas prices falling. If you sell and there is unexpected good news, you’ve locked in all your losses.

So what does an investor do when all investment strategies seem broken, and cashing out is riskier than staying in the market?

First, have courage and patience. Remember, Mama always said there’d be days like these. We’ve always known markets don’t go up forever, so let’s not panic when they behave the way they should.

Next, take a larger look at your strategy over the past several years. Even after this dramatic selloff, the market is still up considerably over recent years. No one likes to give back gains, but if you’ve been tactically and strategically rebalancing along the way, you’ve banked a fair amount of profit. You’re likely still ahead and will probably stay ahead even if the market selloff continues.

Finally, think of your strategy going forward. Markets don’t fall forever, and dislocation creates opportunities. While there isn’t much you can do at the moment, that will change. While the selling is rational now, fear and panic have a way of creeping in. When that happens, the good investments will get thrown out with the bad and opportunities will emerge. You need to be ready.

AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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