Well… it’s Monday following an 11% drop in the DOW from last week. And what’s happened?
When financial markets hit periods of volatility like this past week, these questions inevitably fly around: Is this the right time to sell? Why are my account balances dropping? Shouldn’t you (the advisor) be doing something? Shouldn’t I change my allocation?
Amid all the news and noise, investors are wondering what to do – if anything. You don’t have to look back far in history for an example of what to do in volatile times. The stock market downturn at the end of 2018 provides a recent instructive case study on what can happen if investors make changes just when the market situation starts to look dire.
The graphic below shows that a hypothetical, diversified 60% stock/40% bond portfolio that started with $1 million on November 1, 2018, would have lost 5.7% of its value by Christmas Eve. Yet that same portfolio would have jumped to a 4.2% gain just two months later, and go on to experience returns of ~19% in 2019.
As a result, an investor who sold the portfolio’s assets at the Christmas Eve bottom would have nearly $100,000 less than one who stayed the course.
Which brings us to our point today: at 4:00 pm, the market is back up 1,295 points. So… we started at 28.089 last Monday, and we’re now back up to 26,709. I expect by the end of the week, we’ll be back closer to where we left off. This event could be classified as a ‘shake out’.
If you have a blended portfolio (and all our clients do), you didn’t fall that far to begin with. The lesson here is: it’s important to keep your eyes on the next 5-10 years, or even longer. We are not gambling or speculating. We’re investing for your whole life. If you’re in distribution mode, making knee jerk decisions will result in critical failures. We’re hear to help you avoid those mistakes.
If you’d like to discuss how diversified your portfolio is, be sure to give us a call at 443-718-6311.