In general, the market has been climbing the wall of worry all year, and certainly since 2016. market declined by about -4% last week, the biggest bout of volatility since February. Instead, it’s to maintain a portfolio that can withstand these bumps. The goal of any long-term investor with a financial plan isn’t to swerve in and out of markets to avoid a few potholes. Second, there are always reasons to be concerned, which we often refer to as the “wall of worry.” Over the past nine years, the wall has consisted of: fears of a double-dip recession, government shutdowns, fiscal cliffs, deflation, central bank distortions, collapsing oil prices, Grexit, Brexit, Russia, China, trade wars, tech stocks, and many more. If the economy and corporate fundamentals remain healthy, stocks will do well in the long run. Short-term declines of 5% are par for the course when investing in stocks and are not necessarily cause for alarm. First, stock market volatility is not only normal – it’s healthy. Thus, there are two important takeaways from this latest market episode. And while it’s natural to wonder where the market will go from here, it’s more important not to lose sight of your financial plan.Īfter all, the beauty of long-term investing is that the specifics of any market episode matter less than maintaining a good overall course in a balanced portfolio. There are a number of factors driving this volatility including trade wars, Fed rate hikes, fears that earnings growth has peaked, a sector rotation, and more. Volatility increased with swings in both directions: stocks fell -5.3% over two days, representing the worst decline since February, before rebounding 1.4% on Friday, the best day since April. A great quote on maintaining composure in volatile situations is often attributed to the boxer Mike Tyson: “everyone has a plan until they get punched in the face.” With the S&P 500 tumbling -4.1% last week, many investors may feel a bit roughed up.
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