It's been a while since we've seen corrections of this magnitude and it's probably time to review what it means to be a disciplined investor.
Unless you had to take money out of the market because of some unplanned-for need or (God forbid) you got a margin call (not my clients, no way), these losses are probably temporary in the long run. Real? Yes. Permanent? History says otherwise. The worst 10-year period for the S&P 500 (or its equivalent) ended in 1938 with a -1.7% annual return. Not great, but it included The Great Depression. There have been five since 1928 - three ending during the Depression and two in the aftermath of the financial meltdown in 2008.
This looks to me like 'hot' markets cooling off - a correction in valuation - not a financial crisis or even a recession in the making.
To get through this, here are some things to remember:
LOOK AT THE LONG VIEW
In addition to the stats above, go pick out your favorite beat-up fund or ETF and click on the five-year chart.
FIGURE OUT HOW MUCH OF YOUR RETIREMENT COMES FROM THE STOCK YOU HAVE NOW
. . . and how much comes from investments you'll make the rest of your working life. If you're in your 30s, as much as 75% of your retirement fund could come from future earnings. That means a 10% drop in the market is only a 2.5% hit to your eventual retirement fund (and your future investments just went on sale).
HOW MUCH OF YOUR PORTFOLIO IS IN THE AFFECTED MARKETS?
This correction is hitting most of the stocks classes, big & small, domestic & foreign, value & growth. On the other hand, most indexed bond funds I've seen have been up or steady during this slide and, of course, cash is unaffected. If your portfolio is only 70% stocks, a 10% correction gets cut back to a 7% (or less) correction. Not fun, but that's why you diversify.
THIS MAY BE AN OPPORTUNITY TO REBALANCE
Rebalancing forces you to buy low and sell high. It takes nerve to jump into a market that has been falling. Maintaining your asset allocation forces you to do so when markets have moved in the extreme.
For other perspectives, check out the links below.
The Oblivious Investor
The Reformed Broker
MarketWatch
FiveThirtyEight.com
If you're a Missouri resident and would like help with your planning, please visit us at www.comptonadvisors.com.
Compton Advisors, LLC is a Registered Investment Adviser (RIA) firm regulated by the Securities Division of the Missouri Secretary of State office. Compton Advisors, LLC does not render personalized financial, investment, legal, or tax advice through this blog. This information is for informational purposes only and does not constitute financial, investment, legal, or tax advice. This information has not been approved or verified by any governmental authority.
Unless you had to take money out of the market because of some unplanned-for need or (God forbid) you got a margin call (not my clients, no way), these losses are probably temporary in the long run. Real? Yes. Permanent? History says otherwise. The worst 10-year period for the S&P 500 (or its equivalent) ended in 1938 with a -1.7% annual return. Not great, but it included The Great Depression. There have been five since 1928 - three ending during the Depression and two in the aftermath of the financial meltdown in 2008.
This looks to me like 'hot' markets cooling off - a correction in valuation - not a financial crisis or even a recession in the making.
To get through this, here are some things to remember:
LOOK AT THE LONG VIEW
In addition to the stats above, go pick out your favorite beat-up fund or ETF and click on the five-year chart.
FIGURE OUT HOW MUCH OF YOUR RETIREMENT COMES FROM THE STOCK YOU HAVE NOW
. . . and how much comes from investments you'll make the rest of your working life. If you're in your 30s, as much as 75% of your retirement fund could come from future earnings. That means a 10% drop in the market is only a 2.5% hit to your eventual retirement fund (and your future investments just went on sale).
HOW MUCH OF YOUR PORTFOLIO IS IN THE AFFECTED MARKETS?
This correction is hitting most of the stocks classes, big & small, domestic & foreign, value & growth. On the other hand, most indexed bond funds I've seen have been up or steady during this slide and, of course, cash is unaffected. If your portfolio is only 70% stocks, a 10% correction gets cut back to a 7% (or less) correction. Not fun, but that's why you diversify.
THIS MAY BE AN OPPORTUNITY TO REBALANCE
Rebalancing forces you to buy low and sell high. It takes nerve to jump into a market that has been falling. Maintaining your asset allocation forces you to do so when markets have moved in the extreme.
For other perspectives, check out the links below.
The Oblivious Investor
The Reformed Broker
MarketWatch
FiveThirtyEight.com
If you're a Missouri resident and would like help with your planning, please visit us at www.comptonadvisors.com.
Compton Advisors, LLC is a Registered Investment Adviser (RIA) firm regulated by the Securities Division of the Missouri Secretary of State office. Compton Advisors, LLC does not render personalized financial, investment, legal, or tax advice through this blog. This information is for informational purposes only and does not constitute financial, investment, legal, or tax advice. This information has not been approved or verified by any governmental authority.