Crises pass, and markets eventually regain equilibrium.
Provided by Angel McCall CFP®
We have seen some uneasy times lately.
This past Monday the DOW dropped 1,175 points - a record single day point decline. Uneasiness impacts the financial markets. When it does, we all need to keep some long-term perspective in mind. Those who race to the sidelines and exit equities may regret the choice when crises pass.
Wall Street loves calm. Traders literally want “business as usual,” every day. If breaking news disrupts that calm, it can rattle the market – but every investor must realize that these disruptive events are exceptions to the norm. (If the major Wall Street indices rollercoastered dramatically every day, who would invest in stocks to begin with?)
History shows how the market has bounced back in the past.
You probably know the old financial industry saying: past performance is no guarantee of future results. That is certainly true, but it is also true that the major indices have staged some impressive recoveries when confronted with turbulence. After the crash this past Monday, by Tuesday the market had already recovered half of its losses.
Market dips like the one we experienced this past week are like self-perpetuating fear loops. Inexperienced, uneducated investors pull out, which causes the market to dip further. Computer algorhythms written to buy or sell stocks are then triggered to sell, which again, causes the market to dip further. At this point, experienced asset managers buy, because they know that the market will recover. Unless the sell-off is connected to a systematic event in global markets, there is no cause for concern during a dramatic correction.
Stock market corrections happen regularly.
This past week reminds us these ups and downs are simply the nature of the stock market. Although startling corrections may be unsettling, historically, these fundamentals have been supportive of the market.
Investing for Volatile Markets
My clients are in well-diversified portfolios specifically tailored to their risk, goals and time frames. The amount of U.S. stocks ranges from 8% to 28%. The big dip and recovery this week minimally affected their portfolios.
The remaining investments are stocks from around the world and a variety of bond classes. I also incorporate a really good hedge fund that can “go anywhere” to reduce portfolio volatility. This fund has only had 1 down years in the last 20 years, and when the S&P went down 37% in 2008, this fund was up 5.33%.
Portions of this material was prepared by MarketingPro, Inc., and does not necessarily represent their views.All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - businessinsider.com/stock-market-news-buy-the-dip-bulletproof-rebound-2017-8 [8/15/17]
2 - investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx [9/11/17]
3 - investopedia.com/news/why-stock-market-correction-may-rattle-investors/ [7/18/17]
4 - latimes.com/business/hiltzik/la-fi-hiltzik-market-corrections-20170530-story.html [5/30/17]