Market Downturns: Always Common / Sometimes Painful
If you’ve paid any attention to the news recently, you can’t escape the coverage of the stock market and how it started 2016 by retreating back to levels not seen since last August. The reasons for this selloff are due to many similar stories from last fall: China’s economy showing significantly lower growth, US manufacturing slowing, falling oil prices which are hurting earnings of many companies in the S&P 500, and geopolitical risks that exist in places like Russia, the Middle East and Korea.
Of course there is always positive news too that’s worth keeping in mind, and usually not announced so joyously by the press. Some of these stories include high quality bonds (the kind we recommend) which are performing very well, the strength of the US Dollar is very good for those who travel abroad as well as for companies that import goods, and falling oil prices are good for US consumers at the gas tank-acting much like a tax cut. Also, the Fed raising rates will be good for clients heavy in fixed income (higher rates), and is a signal that the US economy, overall, is improving and doesn’t need as much support.
Good news or bad, what hasn’t changed is the fundamental question that we all need to ask ourselves: “What do we know right now that the markets do not?” Markets are highly efficient and prices (of the stocks being traded daily) are where they are because these risks are known. The inevitability of the markets is that they could go lower if things are worse than expected – or higher if better than expected.
With that said, however, the feelings of uncertainty and anxiety that sometimes accompany down markets can test our fortitude as long-term investors. All of this is precisely why we go through a thorough process with our clients from the beginning to put together a personalized, well-thought out investment plan which anticipates down markets. Our planning process is intended to make sure you don’t take more risk than you have the ability, willingness, or need to take. This helps us to stay on track, and to be as prepared as possible to also experience the unexpected upturns in the market. These upturns often occur when most people aren’t expecting them (see the 6 year bull market born out of the 2008-2009 downturn).
We remain confident in our philosophy and the strategies we put in place to help you achieve your financial goals. Whatever happens tomorrow, next week, next month or next year, remember that we are here to help you navigate through these periods and to put what we believe are the best odds of success on your side.
If you find yourself continuing to tune into the negativity, however, this article from Larry Swedroe (click to read) might help with ‘fighting the negative’ and has some very helpful financial (and psychological) pointers.
If you want to discuss your current situation or how you’re feeling about current market conditions or any other matter, please don’t hesitate to call.