Staying Calm through the storm
The recent higher return, lower volatility environment has the average investor over the moon. But historically speaking, this scenario is about as commonplace as a blue moon.Since 1950, there have been 34 years when the S&P 500 Index experienced a double-digit plunge and only four years when it didn’t see a correction of at least 5%. Despite all of these drawdowns, the S&P 500 returned 11% (compounded annually) over the period.
These ups and downs – and the long-term reward for sticking them out – are simply part and parcel of investing.
Market Corrections
The average investor is regrettably their own worst enemy, jumping in and out of their investments at precisely the wrong times and effectively sabotaging their chances for a satisfactory long-term outcome. They tend to chase short-term performance and buy high, then panic when that performance wanes and sell low.
As a client of De Thomas Financial Corp. you truly understand us - you understand our investing philosophy, what we stand for and how we invest. As a result, you’ll be able to withstand and hopefully embrace the volatility that's starting to reappear since you also get that long-term investors regard market declines as good fortune, a time to capitalize on cheaper stock prices.
On the other hand, if you’d be shocked by a downturn in your investments, then you may have overstated your risk tolerance and your ability to handle a market downtown. Sure, embracing stock price movements with the right attitude and investment approach can be financially rewarding. Although It’s still not for everyone. Your investments shouldn’t keep you up at night and we’ll all sleep better knowing we’ve partnered together for the right reasons.If the past few days have caused you to have sleepless nights over the past week, we suggest that you contact us to set-up a review of your portfolio and your risk tolerance.
If you have a view, as we do, on what an investment can be worth in the future, the short-term movements in the market provide little worthwhile information but plenty of opportunity to buy the when the market is “on sale.”
So now What?
From our clients’ point of view, this begs the following questions:
Does it matter what happens to individual asset classes or the market in the short-term?
Would investors be better to move out of equities entirely and “wait on the sideline?”
From our perspective the answers to both questions are “no.” Here is why:
Diversification works far better to build wealth than trying to time the market. If one has the discipline to re-balance portfolios regularly (and we do), then over time we are reducing exposure to assets that have appreciated in price and acquiring ones whose prices have dropped. That is a good recipe for building and maintaining wealth.
Over the longer term, this type of market adjustment is normal and healthy. Periodic downturns clear out market excesses and set the stage for further advances. To put the recent decline in context, the market is still up substantially over the past five years. And, although down over the past 12 months, it remains above the levels of October 2014, when it dropped and then fairly quickly recovered.
As unsettling as recent market movements have been, our investing philosophy is (and has always been) to remain focused on the long-term objectives of our clients rather than short-term fluctuations sabotage good financial plans. ,
We do not know what the short-term market will look like, however, we are certain that staying focused and disciplined will remain the best way to build and maintain wealth.
Source: www.awealthofcommonsense.com, “To win you have to be willing to lose”. Drawdowns calculated at a peak-to-trough loss any time throughout the year, not a loss figure from the start of the year.
