Market volatility is as normal as the leaves changing colors in October, the Sox taking the field at Fenway in April and traffic heading to the Cape on Memorial Day Weekend.
I know that even a 5% decline over a short period can feel unsettling. We have all lived through bear markets in 2008 and we don’t want that to happen again, but market corrections are common and occur on average of three times a year. According to the S&P, Market corrections of 10% or more are also surprisingly common and have happened on average once per year.
While markets may seem volatile, they often bounce back quickly. According to the S&P, despite averaging a double-digit correction annually, 31 of the last 41 calendar years have finished with positive returns.
So why does all of this feel so abnormal? Well, last year markets climbed without much downside. Valuations have been stretched, especially in the high-tech U.S. growth sector, and those are experiencing a large contraction.
Asset classes that have been out of favor recently, such as energy, value, financial and TIPS, are now showing the greatest gains. This illustrates how essential it is to always remain diversified because there are always opportunities.
Remember, even the “safest” sectors can experience volatility. For example: bonds. With interest rates rising, and the Federal Reserve indicating more to come, we could see increased volatility in fixed income sectors.
At the end of the day, it is important to stay focused on the horizon. The media, with its sensationalized headlines, wants to create a stir so that you’ll click on the link and watch longer. Remember: Market movement is normal and healthy. So, try to tune out the noise.
It is important to keep your personalized plan in mind. When markets drop, this is the time to revisit your long-term vision and the plan we have assembled to get you there.
Above all else, you aren’t in this alone. When you start to feel anxious or nervous, give us a call.
And remember, just like autumn, opening day and summer traffic, this too shall pass.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.