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Short-Term Volatility- What Happened Today?
U.S. stocks careened lower Monday. Short-term volatility pushed major indexes closer to a bear-market territory as a price war for oil and coronavirus fallout frightened investors.
The selling was heavy across markets and geographies, and U.S. stocks fell hard enough after the open to trigger a 15-minute trading halt for the first time since 1997. As of 4 p.m. Eastern time, the Dow sank 7.8%, its sharpest daily decline since 2008. The S&P 500 fell 7.6% and the Nasdaq Composite slid 7.3%.
The spread of the coronavirus and its impact on global economic activity is increasingly troubling investors. As we approach bear market territory, keep in mind that trying to predict the final outcome is a fool’s errand.
Stick to Your Plan
In times like these, it’s vital to have a financial plan. It’s also important to stick to your portfolio that supports your financial plan when there is market volatility, scary headlines, and fear in every news and social media outlet.
The clear investment implication is that even more than usual, a well-diversified portfolio is essential. This includes diversification by region but also by asset class. Once again, we see the use of core government bonds in cushioning the value of a portfolio, despite those bonds starting from historically low, and seemingly unattractive, yields.
It’s important to continue to remember that timing the market is virtually impossible and that it’s better to maintain a long-term perspective on investing. Market fluctuations, such as those we’re experiencing have happened before and should not alter your overall investment strategy unless your financial plan has changed.
Rebalancing Helps Maintain a Diversified Portfolio
The financial markets don’t like bad news and the current coronavirus outbreak is no exception. As we saw today, many investors are tempted to “do something.” But in times of volatile markets, the best move of all for long-term investors is often no move at all. Though this is hard, it is even harder to buy investments that have performed relatively poorer, and sell investments that have performed relatively better in the short run. This requires extreme discipline.
One of our favorite sayings from Warren Buffett is, “It is wise to be fearful when others are greedy and greedy when others are fearful.” This is a discipline that requires an iron-will and long-term perspective. We rebalance our client’s portfolios, not because we believe we can time markets, but because we believe maintaining a proper risk alignment is vital for long-term success.
In the past, investors who sold when there was short-term volatility, bad news, and falling prices, missed significant rebounds that shortly had stock markets back to prior levels. There’s no guarantee that today’s market will play out the same way; stocks have sometimes taken days, months or longer to regain losses. But, remember that knowing when to get back in is just as hard as knowing when to get out.
We are Here for You
We continue to closely monitor market conditions and we are committed to helping navigate this volatility. As a practical application, consider turning off the news and going out for a walk with a friend or loved one. If you’ve never created a written financial plan or if you don’t have your portfolio and risk integrated with your financial plan, please give us a call. We’d love to help you by being your financial accountability partner.
Short-term Volatility Further Reading
Feel free to share this blog and the following PDF with your friends and family who may be anxious.