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Tolerate the Turbulence
Look beyond the moment. Stay focused on your long-term objectives.
Provided American Financial Advisors, LLC
Volatility will always exist. You invest for the long term and must learn to tolerate it. Rocky moments are normal, but don’t last forever.
Since the end of World War II, there have been dozens of Wall Street shocks. Wall Street has seen 56 pullbacks (retreats of 5-10%) in the past 73 years. The S&P index dipped nearly 7% in the most recent decline and almost 20% in the 4th quarter of 2018. On average, the benchmark fully rebounded from these pullbacks within two months. The S&P has also seen 22 corrections (declines of 10-19.99%) and 12 bear markets (falls of 20% or more) in the post-WWII era.
Even with all those setbacks, the S&P has grown exponentially in value. During the month World War II ended in September of 1945, its closing price hovered around 16. At this writing, it is above 2,900. Those two numbers communicate the value of staying invested for the long run.
This current 10+ year bull market has witnessed five pullbacks of nearly 20% since 2008 - but has risen roughly 335% -- even with those stumbles. Investors who stayed in equities through those downturns watched the major indices soar to all-time highs.
As all this history shows, waiting out the shocks may be highly worthwhile. The alternative is trying to time the market. That can be a fool’s errand.To succeed at market timing, investors have to be right twice – when to get out and when to get back in. This is a tall order. Instead of selling in response to paper losses, perhaps they should respond to the fear of missing out on the gains realized during a recovery and hang on through the turbulence.
Volatility creates buying opportunities. Shares of quality companies are suddenly available at a discount. Investors effectively pay a lower average cost per share to obtain them. Dividends continue to buy more shares at lower prices.
Bad market days shock us because they are uncommon.If pullbacks or corrections occurred regularly, they would discourage many of us from investing in equities. We would look elsewhere to try and build wealth. A decade ago, in the middle of the tough 2007-09 bear market, some investors convinced themselves that bad days were becoming the new normal. History proved them wrong.
As you ride through periods of volatility, keep two things in mind.
(1) Your time horizon. You are investing for goals that may be five, ten, twenty, or thirty years in the future. One bad market week, month, or year is a blip on that timeline and unlikely to have a severe impact on your long-term asset accumulation strategy.
(2) Remember there have been more good days on Wall Street than bad ones. The S&P 500 rose in 53.7% of its trading sessions during the years 1950-2017, and it advanced in 68 of the 92 years ending in 2017.
Sudden volatility should not cause you to exit the market. If you react anxiously and move out of equities in response to short-term downturns, you may impede the progress toward your long-term goals.
Please call us at (770) 977-2434, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or visit our website at http://afainvestments.com/
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 - marketwatch.com/story/if-us-stocks-suffer-another-correction-start-worrying-2018-10-16 [10/16/18]
2 - multpl.com/s-p-500-historical-prices/table/by-month [10/18/18]
3 - crestmontresearch.com/docs/Stock-Yo-Yo.pdf [10/18/18]
4 - icmarc.org/prebuilt/apps/downloadDoc.asp [2/18]
