“The key to making money in stocks is not to get scared out of them.”
— Peter Lynch
I understand that the recent market declines and enhanced volatility may have you concerned about your investment portfolio. It is obviously instinctive to wonder what you/we should be doing with respect to your portfolio when the market goes through times such as these (either approaching or already at a level defined as a “correction.”)
A correction is defined as a sell-off of 10% or more from a benchmark’s recent high, which as of this writing, most of the major U.S. stock indices have breached. Is this the correction that so many have been waiting for? And if this is THE correction, what should we do? In all likelihood, the best course of action will be to maintain your current investment strategy. As long as your long-term goals and objectives have not changed, your portfolio should not need to change either. If anything, valuations are more compelling now and this is the time for us to discuss whether it makes sense for you to deploy excess cash.
The current market environment seems to be driven by concerns of slowing global growth and, in particular, the strength (or lack thereof) of the Chinese economy. However, the one consistent historical trend for stocks has been that while the markets certainly can exhibit volatility in the short run, over reasonably long investment horizons those short-term periods of weakness tend to smooth out. History shows that subsequent to significant one day sell-offs of 6% or more, longer term stock market returns of 1, 5, and 10 years, have been largely positive. When looking at a long term stock chart, it has been the advances that are permanent in nature, while the declines have been more temporary.
I understand that sitting through these kinds of market environments can be stressful. History will show us that, on average, corrections of 10% or more occur on an annual basis. For perspective, it had been approximately 4 years before this most recent correction (the 3rd longest stretch in the past 50 years!) So in part, it is the fact that many of us had become accustomed to a very low volatility environment that makes this most recent stock market activity that much more difficult to witness.
I want to be sure that if you have any questions or concerns, that you please reach out to me or your Financial Advisor.
Thank you for your continued trust.
Andrew Gluck, CFA
Managing Director, Wealth Management
GCG Financial, LLC