Lately, it may seem like every time we log in to check our investments they are down. I certainly know the feeling personally, but I also can see it for clients. I am seeing lately a few days where the stock market has fallen sharply and they have photos on news websites of traders on the floor of the stock exchanges grabbing their hair, yelling, or looking dejected by the end of the day. The sky is falling! This is what many pundits and so-called experts shout through the television or news website. It is hard to not feel scared. I completely understand the emotional response that we feel when it comes to seeing our account value decline in value. But there is more to the story….
Market corrections are normal. Market sell-offs have happened many times over the years. Each time the value of the index has risen to higher highs and those who have a disciplined investment strategy are able to participate in a risk-proportionate manner. Here at Walkner Condon, we pride ourselves on that discipline.
Diversification, rebalancing, and understanding the historical movements of the markets are keys to surviving market volatility. These are imperative to our long-term financial success.
I have seen what happens when people are not diversified and make serious mistakes in their portfolios under the feeling that “I can’t take the losses.” The Great Recession in 2008-2009 was an example of this as we saw over 50% decline in U.S. Equities (S&P 500). Many investors were over-allocated to this asset class and sold out at just the time that they should have been adding to their portfolios. For many, it will take years to overcome this common investment mistake.
In the last 9 years, we have seen a bull market that has brought about tremendous growth in the valuations of these same U.S. equities. Developed international and emerging market stocks have not kept up with the U.S. equities over that time period. However, that is not the entire story. Over the last 15 years, emerging markets have actually outperformed U.S. stocks (by 2.4% annually, including in 2017.) We believe there is an opportunity for growth over the long term in emerging markets while the U.S. stocks could be hampered by high P/E ratios coupled with a rising-rate environment. Stocks are being hurt this year, both globally and now in the U.S. Volatility is rising, and so are interest rates (which can hurt the value of bonds in the short term). We know that this can cause anxiety or fear, but how we respond to it is one of the only things that we can control. We believe at Walkner Condon that continuing to stick to your long-term strategy and staying invested will pay off in the long run. After all, we can not guarantee that the stock market indexes will recover from any recent drops, but there is something that we are certain of - it has every single time in the past.