Market Volatility ≠ Your Volatility

I’m writing this article in the middle of May shortly after the S&P 500 fell 70 points or 2.4%.  Did you notice?  Good for you if you didn’t or if you did but didn’t worry.  We are in the midst of a tariff tit for tat that President Trump is waging with China.  It is also during a time when political dysfunction has never been higher and mutual commonality in Congress is non-existent.  These times may seem especially volatile… but only if you look at the news every day.  Well I have good news for you.  You don’t have to!

 

Simply stated, volatility (or the ups and downs of the market) is a function of how often you look at the markets.  Or tune into the evil financial media where 95%+ of what they say is negative.  Remember, fear sells.  If they constantly told you the best way to invest, the messaging would start to dull.  Everyone would tune them out, ad revenue would decrease, and commentators would lose their jobs.  I digress.

 

Your personal volatility, what you experience, is based on how often you look at your investments or how frequently you watch CNBC.  You can control your personal volatility by controlling how often you look.  You cannot control stock market.

 

For example, you may or may not have noticed the volatility over the last few weeks or volatility in late 2018.  If not, again, good for you.  Here is a chart of the S&P 500 from September 1^st, 2018 to May 13, 2019.  Notice the number of peaks and valleys.

Market Volatility: September 1, 2018 to May 13^th, 2019

 

However, if you only looked once, here is what you would have experienced:

Your Volatility: September 1, 2018 to May 13^th, 2019

 

A slight 3% decrease.  You lost a little money but not as much as the financial media wanted you to believe.  Yes, the market fell almost 20% at one point, but if you didn’t sell, you didn’t incur those losses.  If you were watching the news, you might’ve thought about bailing out of your well thought out, long-term financial plan on more than one occasion.

 

Remember, if you work with us, you have a long-term financial plan.  Your plan accounts for this volatility, the inevitable recessions, and these pull backs.

 

The only thing that gives me pause is if YOU do not stick to the plan.  The financial media is enemy #1 for our clients and sits atop the financial planner’s most hated list (similar to the FBI’s Most Wanted).  They sell fear and constantly encourage you to abandon your long-term plan.  The biggest risk to you failing to accomplish your long-term goals is you.

 

Here are a few additional examples of market volatility vs. had you not looked at the markets:

Market Volatility: Start of 2017 to May 13^th, 2019

Your Volatility: Start of 2017 to May 13^th, 2019.  A 24.5% increase.

Market Volatility: June 1, 2008 to May 13^th, 2019

Your Volatility: June 1, 2008 to May 13^th, 2019.  A 200% increase.

 

Every great long-term investment has multiple periods of poor performance depending on the timeline.  Let me state that again: Every great long-term investment has multiple periods of poor performance.

 

If the volatility has you concerned, give us a call.  That’s why we’re here.  We can talk about the steps we should take should the market go up or down 20%.