Gut Check in Rocky Markets – 2016

In times of stock market weakness – like we are seeing over the past month – we can tend to get scared.  We are human.  However, I stress to my clients and friends NOT to allow short-term market moves (monthly, quarterly…even yearly) to lead to poor decisions.  Why?  Please read on…

The following chart reads like a cartoon so not to worry that I am sending you a complicated graph.  The RED DOTS = how much the market went down sometime during each year.  The BLUE LINES = where the market finished at the end of the year.

Here is the point:

• When you have an investment portfolio, the goal is to make money for the long-term.
• When you have an investment portfolio, in order to make money you will endure volitility (market ups and downs).
• The average move down each year since 1980, has been approximately -14%*.
• That means, for example in 2014 (the last full year of available data) the market (the large-company S&P 500 index) ended up 14% but had an intra-year decline of -10%.   (2015 is turning out to look like a year that finished down 0.7% for the year [or up 1.4% if you include dividends] with an intra-year decline of approximately -15%**.)
• In 2009 (the year after the tragic financial crisis) the S&P 500 ended the year UP 27% but was down intra-year (meaning down at some point during the year) -28%.

This means that sticking with an investment plan is CRITICAL for you to reach your goals.  Making a change due to fear of an INTRA-YEAR decline can destroy a well-laid out investment plan.

In my favorite “Gut Check in Rocky Markets” message, I remind you to keep several things in mind: 1) your cash position, 2) your income, and 3) your trust and confidence in your financial adviser.  If one of those things is faltering, then it is time to make changes.  If those three things are in place, then peace of mind can be made possible.  As always, please call me with any questions or comments.

*Source:  Standard & Poor’s, FactSet, J.P. Morgan Asset Management.  Returns based on price and reinvested dividends. 

**Preliminary estimates.