COPING WITH MARKET VOLATILITY

A little curiosity and some education goes a long way!  Several decades back, most investors understood the stock and bond markets.  They realized the importance of balancing a portfolio among the various stock industrial sectors, and for owning a combination of stocks, bonds and cash.  Market volatility, on both the upside and down, were generally understood, and expected from time to time.  But, since the advent of the various personal retirement programs, all that has changed.

Approximately 40 years ago, with the introduction of IRAs and 401(k)s, and the like, many first-time investors began to pour money into the financial markets, and oftentimes through regular monthly contributions to mutual funds.  Over time, those accounts grew larger.  Unfortunately, many of the individual investors failed to ever properly understand what they were getting into.  Employer-sponsored plans generally don’t provide investment advice, and many securities firms fail to properly educate their clients, as well.

Are the markets going to continue their recent slump or might they be preparing to recover?  As usual, you never really know for sure.  But, I would recommend, especially for new investors, to tune-out some of the market commentaries in the media.  Last August’s market decline was, perhaps, worse than this year’s slump; but, slow, eroding drops often take longer to recover than ones like last August, when a sharp decline was followed by a quick recovery.  Either way, market volatility is always hard to take.

Commentaries that dwell on the fact that January’s decline was the worst beginning for a new year, since (you name it) is a meaningless point.  There is no difference between a ten percent drop in August, versus one in January/February, or any other time of the year. Likewise, there is nothing radically different between a ten percent “correction” (decline) in the Standard and Poor’s 500 and one of, let’s say, nine or twelve percent.  In fact, since most portfolios do not mirror the S & P 500, or any other one index, your primary concern should be: How much did your own portfolio drop?

I believe that the long-term Market Recovery, which began after The Great Recession ended, in early March of 2009, at least in the U.S, might have advanced too far and too fast.  Remember that Europe and Japan remained in doldrums at that time, developing markets began to suffer and then, over the past couple of years, commodity-dependent economies fell into a tail-spin.  Global trade declined sharply and all the while, overseas cash helped keep the U. S. economy and markets afloat.

Many investors are always reminding themselves that they really do need to learn more about what goes on in the financial markets, especially after every significant downturn. That is somewhat like telling yourself that you really do need to have your troublesome car battery checked, that leaky toilet fixed or shed a few pounds.  Many people just never seem to do so.  But, with regard to your investment portfolio, what comfort does that continued uncertainty provide for your long-term retirement plans?

For a greater understanding of investment basics, you might read the following linked blog posts.  Additionally, for can click on the Investing or Investment Primer hashtags (on the right).

“Investment Primer—Balancing your portfolio (Equities)”: https://thetruthoncommonsense.com/2015/08/01/ibc-balancing-your-portfolio-equities/.

“Investment Primer—Think of your portfolio as one big pie,. with multiple pockets”:
https://thetruthoncommonsense.com/2015/07/27/ibc-think-of-your-portfolio-as-one-big-pie-with-multiple-pockets/.

“Investment Primer—Basic tools for your investment journey”: https://thetruthoncommonsense.com/2015/07/26/ibc-basic-tools-for-your-investment-journey/.

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