What Should Investors Do?
The market gyrations of the recent past have been unsettling for many investors. As Dimensional’s Jim Parker states in the attached document, “Living with Market Volatility, Again.” Anxiety is a completely natural response to these events. Acting on those emotions, though, can end up doing us more harm than good.” (It’s interesting to note that he’s referring to volatility from last year. But the advice is just as applicable today.)
As we’ve been reminded, markets do experience volatility as a natural part of the business cycle. At times like this it’s easy to get caught up in the sensationalized messages of the media. So we’ve identified a couple of recent articles that we believe provide a more balanced perspective on these events:
- WSJ blog from August 21, 2015: 5 Things Investors Should Not Do Now
o “The U.S. stock market has, in the past few years, been extraordinarily placid by historical standards. Even the sudden drops of the past few days are well within the long-term norm. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals.”
o “Don’t think you–or anyone else–knows what will happen next. Diversification and patience — and, above all, self-knowledge — are your best weapons against this irreducible uncertainty.”
o “This is nothing like the 2008 crash. The economic situation back then was awful, and the stock-market crash in the fall of 2008 would have kicked off a full-blown depression if not for aggressive government intervention. That’s not happening now. The nation’s biggest banks were at risk of failing in 2008; they’re in good shape today. Millions of homeowners had mortgages they couldn’t pay back in 2008, which marked the beginning of a foreclosure epidemic. But careful lending since then has left borrowers much more stable. Finally, many reforms have been implemented since 2008 to prevent meltdowns like that one. Wall Street often bellyaches about overregulation, but those reforms have made the banking system safer and far less prone to panic.
It’s important as you try to manage your emotions around money that you remember the structure of your portfolio is designed to help you accomplish your long term objectives. The purpose of more conservative investments is to weather the inevitable storm.
This is neither an offer to sell nor a solicitation as an offer to buy securities. Any information contained on these websites alone should not be used in making investment decisions. Investors should carefully consider the investment objectives, risks, charges, and expenses associated with any investment and also remember that past performance is not indicative of future performance.
If you have any questions about your portfolio or the impact of current events on your long term plan, please don’t hesitate to reach out to your advisor.
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