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Hooray for the Return of Market Volatility!!!

Picture of Randall E. White

Randall E. White


If you’re reading or listening to the popular press these past few days, you are probably seeing or hearing storm and fury having to do with government shutdowns, market corrections and the possibility that the Fed may raise interest rates. As the popular media scrambles to explain the unexplainable – current market volatility and how long it’s going to last – we thought we’d share a headline of our own:

“The stock market is a giant distraction to the business of investing.”

Said by Vanguard founder John Bogle in his 2007 classic, “The Little Book of Common-Sense Investing.”

So, while we could indulge in analyses of the latest economic news – Trump, shutdowns, interest rates and so on – we won’t. We don’t want to distract you from the real task at hand which, quite simply, is reaching your financial goals.

Market corrections are when the stock market drops by 10+% and this happens, on average, about once every year. However, we have seen very low volatility in the market since the last time we experienced a market correction in 2015. We want to remind you that this is simply the market doing what the market does. These are the very kinds of intrinsic events that our evidence-based investment approach is meant to help you look past, so you can achieve the kind of investment success that Bogle and countless others have described.

  1. US Market Intra-Year Gains and Declines vs. Calendar Year Returns, 1979–2017

chart market colatility

In US dollars. US Market is measured by the Russell 3000 Index. Largest Intra-Year Gain refers to the largest market increase from trough to peak during the year. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.

Exhibit 1 shows calendar year returns for the US stock market since 1979, as well as the largest intra-year declines that occurred during a given year. During this period, the average intra-year decline was about 14%. About half of the years observed had declines of more than 10%, and around a third had declines of more than 15%. Despite substantial intra-year drops, calendar year returns were positive in 32 years out of the 37 examined. This goes to show just how common market declines are and how difficult it is to say whether a large intra-year decline will result in negative returns over the entire year.

If the gloomy headlines worry you to the point that you are wondering whether you need to “do something,” we hope that the “something” will be to call us, so we can discuss what actions – or inactions – are in your best interest. Because we embrace our fiduciary duty with our clients to always serve their highest financial interests, it is both our desire and our obligation to advise you accordingly. We take that responsibility very seriously, so don’t hesitate to be in touch if you are second-guessing your investment decisions and remember the following:

  • Market drops are an expected, unavoidable part of investing, and are the “premium” we pay for achieving long-term returns that enable us to reach our financial goals.
  • Don’t confuse volatility with risk.  Volatility is the temporary fluctuation of stock prices whereas risk is the danger you will not reach your financial goals (i.e., run out of money).
  • Our advice is simple and straightforward: Stay calm and stay the course.
  • Remember why you’re investing. If you’re planning for a long-term goal, such as retirement, your investment allocation already factors in temporary market fluctuations.
  • While market volatility can be nerve-wracking for investors, academic studies have found that reacting emotionally and trying to time the market costs about 1.56% in foregone returns per year! (source?)

If you’re curious about the current market climate, please give us a call!  Come what may, we’re here to help you stay on your way.

Disclosure text: Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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