The decline in stock market values has been quite broad-based around the globe the past couple of weeks, accelerating in the past two days. Although it can be disconcerting at times, our message remains the same: focus on the long-term and on what you can control.
Is this Normal?
There have been over 1,000 trading days in the US stock market between its 2011 correction and the one we’re in the midst of presently. This is an extraordinary length of time for the markets to rise essentially uninterrupted. Historically, you would expect a 10-25% correction in the stock market every couple of years, and in any given year, you usually see at least a 10% decline. So what's happening now is a very normal part of investing.
So what do you do now?
Turn off the News
Fixating on market declines by watching CNBC or Fox News is not helpful. They are in business to get eyeballs watching. It's been a number of years since the last major decline, so they are probably going to make a big deal out of it.
Remember Why You Hired Us
You have already prepared in the best way possible; you have a plan. You have set goals, you have explored your risk tolerance with us, we have discussed your capacity to absorb market fluctuations, and finally, we put in place a portfolio to meet all those diverse objectives. No reason to worry needlessly.
No one knows what the market will do next. The one thing you can be fairly sure of is that the louder and more forcefully a market pundit voices his certainty about what is going to happen next, the more likely it is that he will turn out to be wrong. Stocks could drop another 10% from here, or another 25% or 50%; they could stay flat or they could go right back up again, either way we are here to help you through it.
Diversification is the best weapon against irreducible uncertainty. We preach wise diversification and patience all the time—and it works. Despite the specter of rising interest rates over the past several years, bonds have been steady performers, rising nicely throughout the stock market declines the past several weeks. This is a good thing.
A Final Thought: “Don’t Sell Your House”
You wouldn’t sell your home to someone who randomly knocked on your door and offered you 10, 15, even 25 percent less than what its worth. Well, we won’t do that with stocks either. You weren't planning on moving and your home is still providing a nice place to live. That’s why you bought it. We buy stocks because in the long term they provide dividends and capital appreciation to fund long term goals. We don't buy to trade them based on short-term fluctuations.
When investing it is always important to remember: you don’t own the "stock market"; no one does. Through ETFs and mutual funds, you own shares of companies. What does that mean? You own shares of individual corporations that trade on various stock markets. Around the world there are thousands of healthy and prosperous companies still functioning, employing people, making goods and services that people want, need and desire. If you believe like we do that a large percentage of these companies—or even new ones—will be around in a few years, don’t fear a price decline. You still own the shares, no one took them away—in fact you haven’t lost anything.