Sort Through the Noise and Stay the Course

As we enter what feels like an unprecedented new year of volatility, market pressure, and uncertainty, many investors are on edge. Fear can cause many to lose their better judgement. In these moments, it is critical to focus on the long term and resist the temptation to try to time the market. Let’s sort through the noise, and put some of this recent volatility in perspective.

First, let’s address the recent market pullback. As of 12/31/18, the S&P 500 returned -4.4% for the year and the MSCI All Country World Index returned -10.1%. This is very much a distinct contrast to this time last year; on 12/31/17, the S&P 500 returned +21.8% for the year and the World Index returned +24.0%. 2017 saw a much greater than normal return, and now we’re experiencing a bit of a “reversion to the mean.” Learn more about volatility and market pullbacks.

You may be asking, “Are we in a period of higher than normal volatility?” And the answer is “no.” While volatility returned in 2018, it was not substantially more volatile than years past. 2018 reminded us what a normal stock market year may look like when compared to the long run average. What we are seeing recently is not unusual – it just feels painful when it happens.

Obviously, it’s tough to watch your portfolio decline in value and there is a lot going on right now: trade wars, political instability, the Federal Reserve raising rates, etc. Even though we’ve seen volatility spike in financial markets, economic fundamentals remain strong, as third quarter real GDP growth came in at an annualized rate of 3.4%. Unemployment remains at historical lows of 3.7% and inflation, measured by CPI for all goods, has risen 2.2% year-over-year. All of these are signs of a healthy economy.

While market volatility can create anxiety, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. We believe the best course of action in a time like this is to simply ride it through.

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Source: Morningstar Direct

This is intended for educational purposes only and should not be construed as personalized tax or financial advice. Please consult your tax and financial professionals regarding your specific circumstances.