This past fall we entered a new period of market volatility. Just like earlier in 2018, markets are volatile with a precipitous drop in a short period of time as the S&P 500 has fallen over 10% from its peak and erased last year’s gains. Smallcap indexes are down even more. Many sectors are in a bear market. While they have fallen recently, interest rates are also rising, causing bond prices to fall as well.
It is understandable if you are feeling nervous, as these things often happen quickly and without warning. But as I said in my discussions with many of you, we have been waiting for events like this to happen for some time. A good portion of this drop merely reverses profits made earlier in 2018 after 2017’s 22% equity markets gain. According to some metrics, we haven’t seen a bear market in almost a decade, so a downdraft is, by these measures, long overdue. While that doesn’t make any of this feel any better, it is important to keep these events in context.
Regardless of what is coming, the best response is not to panic. In many of my conversations with you, we have discussed the possibility of such an event occurring and how your portfolios are prepared for it. Your portfolio allocations have been set up with the intent of matching your tolerance for risk as well as keeping in mind your LONG-TERM objectives. Following the events of the last decade in what was the second biggest bear market in stock market history, many portfolios recovered within a couple of years, and most people are well ahead of where they were at the beginning of that episode. Most bear markets recover much more quickly.
You might be wondering about alternative investing strategies to ride out this difficult time. That’s understandable. However, it is my belief that we should not try to time the market. It might seem prudent to sell now and move toward safety, but when will be the right time to add risk to the portfolio? Research shows that people who follow a timing strategy do much worse than those who stay the course through volatility. However, it may be appropriate for us to have a conversation about whether your level of risk is right for you. If you are having difficulty with the level of risk in your portfolio, let’s talk, re-evaluate your situation and see how we can assure that your portfolio is the right level of risk for you.