A little perspective on the market volatility

All of the news over the last few weeks has focused on how bad the stock market is doing; today was no exception.  First I will corroborate some depressing facts that the news focuses on:

  1. This month, the Dow Jones Industrial Average is down nearly 2,000 points, or 7.6%
  2. This calendar quarter (since the end of September), the Dow is down nearly 11%
  3. Right now, the Dow is below where it started the year
  4. The S&P 500 (what I call ‘the market’ due to it being a broader representation of large-cap US stocks) is down year to date over 4.5%

These are all truths, and all are not what we’d like to see.  But, let’s move to some counter-points:

  • In 2017, the market was up nearly 19% while (as I already mentioned) year to date in 2018 the market is down over 4.5%.  Put together, the market is up nearly 14% for the last almost 24 months; that’s a 7% average annual return which isn’t bad at all!
  • “Yeah, but 2015 was a bad year, too”.  True; so for the almost 4 years from January 1, 2015 to now, the market has a total return of about 24%; that’s a ~6% average annual return; not bad for the still short-term which contains 2 bad years.
  • Let’s look at a 10 year return, starting with 1/1/09: a little over 180% total return, which calculates to a nearly 11% average annual return(!).
  • “Yeah, but that encompasses the 2nd longest bull market in history”. Fair enough.  Let’s step back another 1 year to encompass the financial collapse that occurred in 2008; this drops the total return significantly to about 73%; that still, though, means a 5% average annual return to date for 11 years, which is better than you’d expect when this assumes you bought in at the absolute worst time in our lifetime (2008 saw the market drop by almost 40%, and it slid all of the way to 54% down by early March 2009, in case you’ve tried to forget).
  • None of the above includes dividends, by the way.  If you add those into the last bullet point, it brings the average annual return to 7.3% – remember, this is the worst scenario above.  I’ll take that long term return any day.

Bottom line: don’t let the news get you down!  We win by keeping a long-term perspective, investing to your risk tolerance, refraining from gambling on a couple of individual stocks/industries, and rebalancing regularly.  All of this is what we do for our clients at Element Retirement & Investment Consultants.

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