Monday, August 24, 2015

Market Volatility

Pathways Advisory Group, Inc.
Jeff Karst, CFP®

Today (Monday, August 24, 2015) the S&P 500 closed at 1893.21 (down 237.61 from its peak close of 2130.82 on May 21, 2015).  That’s a drop of more than 11% this year.  How “normal” is it for the S&P 500 to drop this much during the year?  It turns out that over the past 35 years, the average intra-year decline is 14.2%.  See chart below.  Turns out that significant drops are normal.

If this sounds familiar to you, it’s because we first wrote about it in Are Market Declines Normal? in September 2011.

Prior to the past couple of weeks, the stock market has been somewhat quiet.  There have been small ups-and-downs but it’s been slightly positive (before the last couple of weeks).  This recent volatility may have you thinking that we should do something.  But, we cannot predict the future.  This is why our advice has always been (and will always be) to just stay invested.

The following chart shows the importance of staying invested.  For the 20-year period ending 12/31/14, the S&P 500 returned 9.85%.  By missing the 10 best days during that time period, your return would be cut by almost 40%!

In order to obtain what is rightfully yours as an investor (market returns), you must stay invested.  If you attempt to make adjustments, research has shown that the average investor will lose.  We wrote about that research study in Investment vs Investor Returns.

We have the same story all the time – stay invested, think long-term.  If you think it’s boring, you’re right!  We like to be boring.  See Dustin’s article How Boring!

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