This quote is engraved on a clock gifted to me by a client and friend, who has heard me say this very thing since the late 1980s. It sits on my desk and serves as an important reminder to always look at the big picture. Like now, for instance…let’s place the recent stock market volatility in proper context.
In 2017 the S&P 500 Index gained 21.7%. Then on February 6, 2018, the stock market officially entered “correction” territory. A stock market correction is defined as a drop of at least 10% or more of an index from its recent high, which occurred on January 26, 2018. The first thing to remember is that stock market corrections happen, and happen often. According to a study by Deutsche Bank, on average, a correction normally occurs every 357 days, or about once a year. Our last correction was about two years ago, so many may say we were overdue.
Another important point is that stock market corrections mainly matter if you are a short-term trader, and plan to cash out tomorrow. If you have a risk-adjusted portfolio in place, let me offer some good advice that I wish I could claim I said: “Let’s all take a deep breath and repeat after me: I am a long-term investor regardless of what happens in the financial markets in the short term.”
As we wrote earlier, we believe the economic expansion will most likely continue, with nothing over the past week suggesting otherwise. Of course, we would like for stocks to always go up in a straight line, but that is not what history has shown. Though losses are unsettling after experiencing 2017, it is important to keep your perspective and don’t panic. For those investors who would like to delve deeper into the “whys” behind the global equity market sell-off, this article by BlackRock offers an excellent read.
In closing, as the wise and steadied Warren Buffet shared on CNBC, he suggested that instead of watching the daily market reports, you should “re-watch your favorite Super Bowl commercials, get ice cream with your kids, and say ‘hi’ to a friend you haven’t spoken to in a while.” Good advice for us all when the noise gets too loud.
Robert W. Tull, Jr. is founder and president of Tull Financial Group, and a CERTIFIED FINANCIAL PLANNER™ professional in Chesapeake, Virginia. With more than 30 years of financial planning experience in Hampton Roads and beyond, he focuses on the areas of investment management, and retirement and estate planning. He also provides highly individualized personal and business advisory services.
This blog article is provided for general information only, and nothing contained in the material constitutes a recommendation for purchase or sale of any security, or investment advisory services. Reproduction of this material is prohibited, and all rights are reserved. Read the full Disclosure.