Market Harmonics and Dealing with Volatility
“What do you do if I sang out of tune?” My daughter always replies: “I’d stand up and walk out on you.”
My kids grew up hearing lots of semi-non-sensical (and always fun) adages in our home (along with more than a few songs from the 60’s, as you can imagine.) Over the years, the number of quips mounted.
“Do good things. Hit home runs”, as they exited the car for a school day, for example. “On we go” after a grand success or crushing mishap – one of my favorites — serving as a reminder that life is a long-distance effort and not a sprint.
I hear the kids saying, or singing, these things to their own families now. Parents and children can find comfort in these routines.
Stock market returns with no volatility?
From this insight follows the overly-simplified observation that investors seek this kind of harmony as well. Many wish to hear the sweet song of consistent equity-like returns with CD-like volatility.
What I don’t understand, however, is that some investors have come to expect that. I had three different folks in the past week reference the “bad” market this year. As of the last day of April 2018, the Dow Jones Industrial Average is down about 1 percent from the end of last year. That isn’t cause for celebration, but it’s not completely out of tune.
It’s too soon to call 2018 a bad market year
To be fair, I also recognize that the DJIA is down about 8 percent from the January highs. That feels like a sad song, but it’s a bit too early to concede. If the end of the year comes and the market is down 8 percent for the year, I will certainly agree — but it’s too early to tell.
Putting the 2018 stock market into perspective
But the deeper concern is how investors that talk of a bad market today will respond if a 20-30% percent downturn comes? And what if that market trend is sustained for several years? That is my definition of a bad market – and to put it in perspective – downturns like that have happened before.
Expect market fluctuation during your lifetime
A quick look at history shows the DJIA hit a peak in January of 2000, and it didn’t get back to those highs until September of 2006. Similarly, new market highs were reached in October of 2007 that we didn’t see again until February of 2012. (Note: before you throw up your hands in horror, let me explain that these numbers are just the DJIA raw total and don’t include dividends. If you owned large company US stocks during these time periods you collected dividends all along the way, and did much better.)
However, the point remains: you should expect extended stock market downturns and market volatility during your life.
Dealing with 2018’s market volatility
The late Henny Youngman’s plan to deal with stock market fluctuations was quoted on the last page of the March 31, 2018 issue of Forbes: “I’ve got all the money I’ll ever need – just so long as I die by four o’clock.” — Henny Youngman
Let’s you and I make an investment plan for a little longer horizon though, shall we? Investment harmony takes time and plenty of tuning before the song is over, and a financial advisor can help.
As we say in my family: On we go!
May 2018Contact Lorin