Should Stock Market Volatility Concern you? We don’t believe so.
The year 2018, including recent weeks, has experienced more volatility than the remarkably calm and growthful 2017. Should this concern you? We don’t believe so.
Declines of -10% or more typically occur about once per year on average (Source: Capital Group); in other words, this is normal. This statistic does not preclude the market from dropping further, but it also does not indicate further declines or a “crash.”
Current declines are an important reminder to stick to a diversified plan that is built to last through all types of markets. Having conservative investments like bonds and cash can limit returns in a roaring stock market, but they can help stabilize portions of an investment portfolio in a declining market.
Your investment allocation must be determined in advance, as flipping between stocks and bonds cannot be done with accurate timing. Because we expect declining markets, we adhere to a specific process with our clients:
- Determine your risk tolerance through assessment and discussion.
- Coordinate your investment plan and financial plan (your unique needs and objectives).
- Diversify your investments because spreading out risk counteracts uncertainty.
What we see here is not a reason to panic, but rather an opportunity to trust sound investment principles.
“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” — Warren Buffett
As always, please contact us with any questions.
Sincerely,
One Degree Advisors
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More Reading: Volatility. Just What the Doctor Ordered
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