While it's a great time to be a CNBC news anchor, the extreme intra-day markets swings we've experienced during the last few trading days can wreak havoc on the emotions of the typical investor.
- Should we sell?
- Should we buy?
- Is this the beginning of a more substantial market correction (á la 2008)?
Given the velocity of the declines late last week and early this week, it's reasonable to question whether this is the beginning of a major downward move or just a normal correction. To provide some perspective, the chart above shows intra-year stock market percentage declines (red dot & number) as well as the market's return for the full year (gray bar) from 1980 to 8/25/2015. During this time period, intra-year drops over 4% were a common occurrence with an average intra-year drop of 14.2%.
What was almost as common? In 27 out of the 35 years, the market was able to overcome this decline and deliver a positive return.*
"If its so common, why does this decline feel so different?" One answer involves the speed of the decline over the last few trading sessions but I think the real answer is that this is the first 10%+ intra-year index decline we have experienced since 2012. We have short memories, so this feels "new."
While we can only speculate as to where the markets will finish the year, its important to review your portfolio with your advisor and make sure your allocation accurately matches your risk tolerance and time horizon. Once you have a plan in place, stick to it! If you do not have a plan currently, we are here to help.
*Past performance is no guarantee of future results.
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