“Usually, when the urge to change is strongest, the benefit of the change is weakest.”
For several years, U.S. stocks have been on a historic bull run, outpacing most other major asset classes. However, 2018 has been a rocky year for financial markets; beginning with new highs, followed by a correction in February & March, only to reach higher over the summer.
The 4th quarter has seen an even more volatile ride.
Since the end of the last quarter in September, most stock indexes are nearing bear market territory (defined as a loss of 20% or more from recent highs). Many high profile stocks have done even worse, such as Apple which has fallen by almost 31% since the beginning of October (according to Morningstar). The Month of December has been even more bruising; so far being the worst month in years for US stocks.
Markets do go down on occasion. In fact, it’s quite normal. We often forget, that some of the best markets have also yielded very volatile returnswith both ups and downs. This downside risk is the price of an investor’s ability to achieve the even greater historical upside potential. The S&P 500 has produced an average of around 10% per year since its inception in 1928. While it has occurred with often bumpy rides, equity markets still provide the greatest potential to create wealth and help people reach their goals.
Some of the events effecting financial markets this year include:
- * The ongoing impasse on trade-related issues between the United States and China
- *The seemingly unproductive efforts to negotiate Britain’s withdrawal from the European Union
- * increasing social unrest in France,
- * concerns about Federal Reserve interest rate policy,
- * worries about global economic growth,
- * the slide in the price of oil,
- *a flattening treasury yield curve.
* worries about the partial government shutdown
We have to remember that this is what markets do from time to time! It is important for investors to stay focused on the long-term investment goals that prompted them to put capital to work in the markets to begin with, else they risk making decisions based on the discomfort caused by short-term gyrations.
Usually, when the urge to change is strongest, the benefit of the change is weakest. It’s tough to outsmart the markets. In many cases, trying to time the market for exit and reentry simply results in selling low and buying high.
We simply cannot know in advance which markets will outperform over any period of time, but we see from the data that there are strong benefits to taking a path of broadly diversified exposures over time, and participate in the performance of all markets. That’s why we invest so broadly; to capture all market returns.
Keeping your portfolio invested in its balanced asset allocation can become more difficult during periods of market volatility; however, history has shown us more often than not that this is the most prudent course of action.