Putting Stock Market Volatility into Perspective

By Mitchell J. Smilowitz, CPA

Over the last couple of weeks all of the major stock indexes have endured wild swings and given back most, if not all, of their gains for the year. I find myself looking at the stock ticker on my phone several times a day. That’s when I tell myself to sit back, take a deep breath and remind myself of the main thing.

What’s the main thing?

I am a long-term investor.

Being a long-term investor means investing with at least a 5 to 10 year time horizon. With longer life expectancies, even retirees may be long-term investors.

What does It mean to be a long-term investor?

Long-term investing means having a financial plan. It means thinking through your financial goals and developing an investment strategy that provides a realistic opportunity to achieve them. When the market declines, you can rest assured that your long-term strategy will withstand short-term volatility.

If you are unsure of your goals or investment strategy, please contact the JRB.

Being a long-term investor also provides the perspective needed to moderate your desire to do something in response to these short-term fluctuations. Market timing is generally a losing strategy. To succeed, you must time the market accurately twice. First, it means selling investments at the beginning of the downturn to avoid locking in losses. Then you must get back into the market at the beginning of the upturn so you don’t miss out on the gains. Even professionals cannot consistently achieve such accurate investment timing. By focusing on the long-term, you can avoid making investment decisions based on emotional responses to current market fluctuations.

Why is a long-term perspective important?

The longer your time horizon, the more likely you can weather market volatility. Consider this: In the 92 years from 1926-2017, 24 resulted in investment declines. Expanding the time horizon to five years of investment results, only 12 of the 88 overlapping five-year periods resulted in a decrease. Extending the time horizon still further, all of the 78 overlapping 15-year periods from 1926-2017 resulted in investment gains.

In other words, despite short-term fluctuations, history shows that long-term investors enjoy asset growth. Keep in mind, though, that past performance does not guarantee future results.

What impact does market volatility have on my investment strategy?

If you are comfortable with your financial plan, including your strategic asset allocation, you probably don’t need to change your investments based on the ups and downs of the economy. The JRB offers a menu of carefully selected, high-quality mutual funds covering a wide range of asset classes. The JRB Board of Trustees, Investment Review Committee, staff and consultants continually review the performance of the funds to ensure that they meet their performance objectives. You can be confident that the funds offered by the JRB are well managed and have a strong track record.

Volatility in financial markets is normal. But it can also be unsettling. When you begin to feel nervous, focus on the main thing. You are a long-term investor. Over the long-term you know that, historically, investment markets rebound. Unless your goals or strategy need updating, have confidence in your long-term plan.

To review your financial goals and investment strategy, please email us or call 888-JRB-FREE (572-3733).