It has been a particularly volatile period since our last quarterly newsletter, and we wanted to provide our thoughts on the current stock market weakness. Stocks have entered correction territory (down over 10% since their high in May), something that has not occurred since 2011.  Because we haven’t had to deal with anything like this for nearly four years, and possibly due to painful memories from the great recession, many investors may not feel emotionally well prepared for this volatility.
While it is natural to be concerned about your investments during periods like this, and to wonder whether changes to your portfolio are warranted, we encourage our clients to remain calm and to generally refrain from taking any hasty actions. We are certainly monitoring the current market performance and risk posed by the various headline issues, but our approach of disciplined diversification has not changed.
Also, recall that at some point in the past, in a disciplined manner we worked with you to develop a portfolio investment strategy that is aligned with your individual situation (time horizon, need for liquidity, goals and risk tolerance). Assuming that has not changed, we would recommend staying the course and focusing on the long term rather than reacting to the short term weakness (or even panic) in the markets. Trying to avoid market losses by getting out now (selling low) is not a strategy, it is an emotional reaction. “Time in the market”, even through its inevitable periods of weakness, has proven to be more effective than “timing the market”.
 A few more points to consider.
  • Market returns, both upward and downward, often come in very short periods. According to the New York Times, if you miss even a few days of a market rally because you have sold your investments, you risk missing a rebound that may capture all of the year’s positive returns.
  • The U.S. stock market has gained almost 15% per year for the last 3 and 5-year periods. These returns came even with market downturns of 5-10% in the summers of 2011 and 2013.
  • There are still many positive reasons to stay invested – the U.S. economy is growing, interest rates and inflation are low, the dollar is strong, jobs are being created and consumers are spending,  and in addition, stock valuations are now more attractive.

Finally, we’ll highlight a list from a recent article by Jason Zweig in The Wall Street Journal, which gives more color on “What Investors Shouldn’t Do Now”  Similar themes are included in a recent article from The New York Times, “Take some Deep Breaths, and Don’t Do a Thing”. Both articles are attached for your convenience. The following five recommendations align with our thinking.

  1. Don’t Fixate on the News
  2. Don’t Panic
  3. Don’t Be Complacent- our translation – maintain dialogue with your advisor to ensure you are indeed in the appropriate strategy for your risk tolerance
  4. Don’t get hung up on the talk of a “correction”
  5. Don’t think you- or anyone else- knows what will happen next.
Keep these tips in mind and know that we are employing a disciplined approach aimed at your long term strategy. We are also happy to answer questions or discuss your portfolio. Thank you as always for working with our team.
* Sources/Suggested Reading:
Colleen Harvey, CFA
Portfolio Manager
The information contained in this blog is general in nature and is intended for informational purposes only. Furthermore, this information should not be construed as a buy or sell recommendation. All expressed opinions are subject to change without notice. Because the facts and circumstances surrounding each investor’s situation differ, you should consult your financial advisor before taking any action based on this information.