Don't Let The Market's Volatility Send You Into Panic Mode

Remember That Stock Market Corrections Are Normal And Temporary

No one can argue with the fact that we’ve seen extreme volatility in the stock market over the past week. At times like this, it’s not uncommon to feel fear and panic. We’re all human and too many of us have lived through challenging financial crises in the past. While I can’t predict the future or tell you definitively that everything is going to absolutely be alright, I think it’s critically important to keep a few things in mind during this time.

 

What's causing the volatility

First, it’s important to understand why the stock market is acting this way. Fundamentally, the U.S. economy is doing well.  But due to a confluence of events including fears of a slowdown in China, currency devaluation from emerging market countries (China, Vietnam, Kazakhstan, etc.), and uncertainty about the Fed’s pending rate decision, the market has seen a huge sell-off.  In addition to these events, our market is finally nearing correction territory, and this is a correction that is long overdue. 

Understanding stock market corrections

Corrections are a lot like a circuit breaker.  They usually occur when a hot market gets hit with worrisome news- such events cause the market to pause and fall back as institutional and individual investors reassess their positions based on the new information.  These respites are actually good for the market.  Looking back to historical data beginning with the year 1928, the market typically undergoes a five percent correction about every 10 weeks, and a 10 percent correction every 33 weeks.

Our research shows that the market has not seen a full 10% correction in 46 months, which is the third longest in history, so we are definitely due.   

3 things to keep in mind during this volatile time

1. Corrections are normal and temporary.  The stock market won’t go up forever without a few bumps along the way.

 It’s time for the market to pull back a bit and this is a normal part of the process.  Corrections are also temporary.  History tells us that since 1965 markets that correct between 10% and 20% take less than six months to recover.

2. Diversification is your best friend.  This is not the time to panic, but it is the time to be sure that you have a well-balanced, diversified portfolio.  If you have the right mix of stocks and bonds, you have a buffer against losses during times like this.  Trust and be confident in your original investment strategy.

3. Remember that investing is a long-term activity.  While the past week’s volatility has had us all a bit nervous, what happens today or tomorrow is not going to throw your whole investment strategy into a tailspin unless you alter it.  You won’t make any money if you pull your money out now and sit on a pile of cash.  Even if you are near retirement age, you will still be invested for many, many years to come.  

Do you have a solid investment plan?  If not, this is a great time to spend some time on your finances.

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Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.