You’ve seen the headlines, you’ve heard the talking heads, you likely have negative feelings when you see the term blasted across the front page of the business periodicals. Markets have been swinging wildly in 2018. Things started off great in January with the Dow peaking on January 18th at 26,149. Since that time things have moved to the downside. The ride has been like a roller coaster with large swings sometimes, intraday.
People hear the term market volatility, and it makes them feel uncomfortable. How does it make you feel? Do your palms get sweaty? Do you get a little jolt of adrenaline? Do you begin to wonder if you need to change your investment portfolio? Maybe move stocks to cash. Is it time to take some action? These thoughts are common for many people.
We recommend that you consider what the term market volatility means. The dictionary says that volatility is the liability to change rapidly and unpredictably especially for the worse. Remember the news media want to get your attention. Bold headlines that read Market Volatility Returns are effective to get you to tune into what they are saying. They get paid by getting eyeballs to look at them
Unfortunately, these tactics are not good for your investing health.
Let start with the fact that we all should know; stock markets are volatile! Yes, volatile, say it out loud, say it again this time louder! Excellent, that should help you feel alive! When you get animated breathing increase, and the blood starts flowing!
Now that we’ve got that strong emotional response out of the way we can come back to our senses. Statistically, US stocks rise seven out of ten years. That means that three out of ten years they lose money. You see my friends those are the facts. Seven out of ten years, volatility is good! Unlike the dictionary definition above US stock are predictable and not for the worse (most of the time). A 70% chance of success is good for your pocketbook.
Now, you might say fine but the Dow has lost on the order of 2,000 points since the beginning of the year, and you don’t like it! Losing money is not good and what if this continues! At a minimum, if we could get some silence out of the White House, it might help! Please forgive my political commentary!
Yes, all of the above facts are true (except maybe the last) but remember the most important truth, three out of ten years stocks are expected to lose money. Should you expect stocks to lose money 30% of the time? Losing money in stocks is normal, expected, and reality. It is a fact; it is not a bad thing; it is a normal thing.
Bear Stock markets, or Stock market Corrections happen quite frequently. They should not make you uncomfortable or cause you concern; rather, they are to be expected.
Are you with me now? Take a depth breath, inhale all the way, then exhale, again. Now that’s better; everything is fine. Everything is normal. Nothing to worry about! Do you feel better? I hope so!
One more very important thing to remember. Stocks recover, they always do (at least to this point in history). It just takes a bit of time. How much you ask? The average time to recover from the high point to the low point and back is less than two years, and the worst in modern US history is five years.
Again good to know! Financial success requires a real return on your assets. Of course to get a higher return requires some risk.
You must learn to ignore the headlines and fight the urges to react. Create a well-diversified portfolio and stick with it! The rewards are incredible if you start early and stay the course.
Next time you read about market volatility realize the new media only talks about it when stocks are down. They never talk about it when stocks are up (seven out of ten years) because it does not make for good headlines.
Market volatility is your friend, in the long run. Now rest easy!