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Volatility Not a Reason to Abandon Sound Long-term Strategies

October has been a rough month for investors so far. Like it or not, it’s during the most trying times when advisors really earn their keep as investors turn to trusted experts for counsel and direction. This is where it can get tricky for investors. Creeping into their mind is the question of whether their investment strategy is still best for them. As fiduciary advisors, it is our job to educate our clients before they act upon emotions, which sometimes leads to irrational decision making.

Here are some important reminders that can help investors stay on track when it comes to investing.

Market Corrections are a Part of Investing

A market correction is often defined as a 10% pullback from a recent peak. After a calm 2017, two corrections have occurred so far this year. Experts have offered many reasons for the volatility, including the trade dispute with China, rising interest rates, mid-term-elections, peaking earnings, and valuations. The roller-coaster ride in stock market prices serves as a reminder that markets change, sometimes violently, and that a well-designed, long-term approach to investing is key in today’s environment.


Corrections Don’t Often Turn into Bear Markets

Data from the Schwab Center for Financial Research showed that there have been 22 market corrections since 1974. Corrections historically tended to be short-lived, and only four of them, occurring in 1980, 1987, 2000 and 2007, eventually ended up as bear markets.


Corrections look Less Scary with a Long-term View

Although volatile markets can be difficult to endure, a look back at history shows that investors are less likely to suffer losses over long periods. The chart below shows that markets have rewarded investors over time. Every year has rough patches. While the timing of pull-backs can’t be predicted, they can be expected. According to JP Morgan, markets suffered double-digit declines in 21 of the last 38 years. But despite the many sell-offs, roughly 75% of those years ended with positive returns
October Graph
Bonds play a role in Portfolios

We believe most investors should maintain a mix of stocks and bonds in their portfolios, especially during times like this. When stocks decline, bonds have typically helped offset risk and preserve capital. That’s a reason to invest in bonds, even in the face of rising rates.

 Bond Graph October

We understand the uncertainty and fear that volatile markets and negative headlines create with investors.   However, we strongly advise against shifting investment strategy in reaction to short-term fear.  Being prepared for downturns and knowing how to stay disciplined and not overreact is key for avoiding emotional investing.  We can help.   It is perhaps the biggest source of value we offer clients.         

IMPORTANT DISCLOSURE

Past performance may not be indicative of future results.

Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.

Any forward-looking statements, information and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain and actual events or results may differ materially from those reflected in the newsletter.

Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.

A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel and operations are available upon request.

Fun facts

Investors

57 percent of investors have not set financial goals

People

67 percent of people have no financial plan.

Gut Instincts

77 percent of investors are making decisions on gut instinct.

investment knowledge

20 percent of investors claim that their investment knowledge is very strong.