2018 4th Quarter Review
Watch the video below to hear Charles' review of the 4th quarter of 2018.
For this quarter’s review, I want to address the main concern that I’ve been hearing from my clients over the last few months – the age-old fear of losing money as the stock markets seemingly go wild.
In the beginning of the 4th quarter, US stocks were off to a rough start as the markets were hit by rising interest rates, the uncertainty of the mid-term elections, concerns over tariffs and trade wars, and other issues regarding corporate earnings. If the markets are panicking, should you? Not necessarily. Did you know that since 1920, on average, the S&P 500 has experienced a 5% pullback 3 times a year, a 10% correction once a year, and a 20% bear market decline every three years? Yet, over the long run, markets have still generated positive returns in the long run according to Fidelity Investments. If your financial plan is tailored to your specific long-term goals (which it would be if you’re working with me), you can avoid some of the panic that leads to portfolio-derailing investment decisions.
Here are three things to keep in mind:
#1: The volatility we’ve experienced this year is actually fairly normal, following an unusually calm 2017. Since 1957, the average volatility for the S&P 500 (aka the long-term average standard deviation) has been 15.6%. 2017’s standard deviation was only 6.7% and 2018’s was 15.9%. It feels like a huge difference in comparison to 2017, but as you can see, it’s not abnormal.
#2: Stay invested. A study by Fidelity Investments shows that missing even 5 of the best days can drop the overall return of an investment by 35%! That bumps up to 50% for missing 10 of the best days. Since none of us have a crystal ball to accurately predict which days will be the best, it’s a better strategy to stay in the market knowing that volatility is normal.
#3: The risk of stock market losses lessens over time. A study by Capital Group showed that a one-year investment saw 27% negative periods, whereas a 10-year investment only saw 6% negative periods. The longer the investment, the fewer negative periods.
All this to say again and again – stay invested.
Looking ahead to 2019, global growth is expected to slow as the economic cycle enters its late stages. The bull market is old but not quite dead yet! Though volatility is usually expected in the later stages of a market cycle, we can review that your risk tolerance is properly set to remain invested.
(source: “Global Annual Focus: 2018 Year in Review and Market Outlook” – GFPC)
Thanks for listening! As always, don’t hesitate to reach out if you have any questions.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Mountain Peak Financial, Inc. are not affiliated companies. Charles Ragonese CA LIC #0B02155 Firm LIC #0I88569 Investing involves risk, including the potential loss of principal. The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. 710370