Where did this stock market volatility and 10% drop come from?
Many investors hold false ideas about investing strategies, like magic formulas that promise high returns or conspiracy theories about stock manipulations. However, there are things true about investing that many people don’t know or follow. Here are some long-term investing strategies that all investors should follow.
The uniqueness is not the pullback, but how long it has been since we’ve seen a 10% correction.
Since 1946, there have been 84 declines of between 5-10%, which works out to more than one each year. Now, typically the markets bounce back within a few months and historically 3 out of every 4 years the market (as defined by the S&P 500) ends the year in positive territory! World conflict, geo-political issues and concerns about what the Federal Reserve may or may not do 9 months from now are certainly not new. Those issues seem to be constant in the news cycle.
In February-March of 2020, the S&P 500 dropped about 33% before recovering. Prior to that, the previous 10% decline was back in late 2018. In the fourth quarter of 2018 the S&P 500 declined 19%. Prior to this month, we’ve only had two 10% corrections in the last 3 years and 2 months, so it is understandable if you may have forgotten annual 10% corrections should be considered “normal” market behavior.
All statistics and rational investment management practices aside, we understand it’s your money and no one likes to lose money. It’s for these reasons that we build your portfolio with other asset classes that aren’t down nearly as much as the S&P 500 or the NASDAQ. Owning Fixed Income and having a well-diversified investment portfolio are done intentionally for such a time as this. These volatility safeguards have allowed your portfolio to weather the storm much better than a purely 100% S&P 500 portfolio. This is why we structure the portfolios in this way.
While these experiences are never fun, they are inevitable for long term investors and we’ve built this understanding of reality and the performance disparity between differing asset classes as a core tenet of your financial plan.
Please don’t hesitate to reach out with any concerns or questions you may have. We count it a privilege to serve you!