What Should You Do About Inflation and Stock Market Volatility?

Maura Schauss |

By The CFP® Team at Washington Wealth Advisors

After a three-year rally, the financial markets have been down in January, marking their worst slide since the pandemic decline in March of 2020.[i] The recent market dip has put the S&P 500 down over 10%, which is officially called a “correction” on Wall Street.[ii]

In addition to the stock market decline, inflation has been causing concerns. In fact, these issues are inter-related.  Because inflation is reaching 40-year highs, it is expected that the Federal Reserve will begin raising interest rates in the spring, which could potentially slow the economy.[iii]  While cooling the economy is the intent of raising rates, such moves by the Fed can cause further declines in the stock market.

So now investors are understandably nervous about both inflation and their investments.

During stock market volatility, it’s important to keep a level head to avoid financial mistakes.  Particularly with inflation so high, now is not the time to pull all your money out of the stock market and keep it in cash.

Stay Calm

At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Declines in the Dow Jones Industrial Average are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average[iv]:

Ride Out the Uncertainty Storm

It’s important to remember that markets dislike uncertainty. Currently, there is a lot of uncertainty regarding the continued coronavirus pandemic, inflation, interest rate hikes, tensions between Russia and Ukraine, and earnings reports due out for several large technology companies.

With so much uncertainty, volatility right now is extreme. The VIX, or the market volatility index, is at the highest level in nearly a year.[v] As we get more information, it is likely that day-to-day market fluctuations will decrease.

Don’t react

There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. We don’t know yet whether the current investor fears will translate into an official correction, but the risk always exists.

Market volatility has increased in recent years and the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses and that is to the detriment of long term investors.

Remember That Your Portfolio Is Diversified

Fears about inflation, volatility, and market declines are stressful. However, it is important to keep in mind that while the stock market is down, your portfolio is made up of both stocks, bonds, and other assets that are designed to work together to decrease overall losses. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events.

Review Your 401(k) and Other Accounts

Now is a good time to look at all of your investment accounts, including your 401(k) to make sure it is well diversified and aligned with your goals. If you have not rebalanced your other investment accounts in the last year, get in touch with your advisor to review offer appropriate recommendations to minimize potential losses.

Speak With Your Advisor

Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party. Human nature causes us all to act out of emotion when our accounts go down. As an independent firm, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that aren’t driven solely by emotion. Connect with us by calling 703.584.2700, email clientservices@washingtonwealthadv.com or book time with your advisor using our online scheduling tool.

We’re Here for Your Friends and Family

If you have friends or family who need help with their investments, we are happy to offer a complimentary initial consultation. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes simply speaking with a financial advisor may help investors feel more confident and less concerned with the day-to-day market activity.  Share this link to schedule a complimentary initial consultation.




Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.





[i] https://www.cnbc.com/2022/01/23/stock-market-futures-open-to-close-news.html

[ii] https://www.forbes.com/advisor/investing/what-is-market-correction/

[iii] https://abcnews.go.com/Business/wireStory/fed-signal-rate-hike-launches-risky-inflation-fight-82442509

[iv] https://www.capitalgroup.com/individual/planning/market-fluctuations/past-market-declines.html

[v] https://seekingalpha.com/news/3790661-sp-500-etfs-fall-as-the-vix-crosses-above-32