Is market volatility good or bad? It may be both….depending on whether you are a seller or purchaser of stocks. When the volatility results in a market decline, it is more attractive to invest. Each dollar purchases more stock when prices are down. Therefore, market declines may be good for purchasers who have a longer time horizon before they need their investments. However, for those that are in the liquidation or “decumulation” phase of their investment plan, market volatility may have a significant impact on their long term financial goals.
If you have not reviewed your investment plan in a while, this may be a good time to conduct a check-up of your “Risk Tolerance” to fluctuating markets and also evaluate whether your investment allocation aligns with your cash flow needs.
Market volatility is normal. With the exception of 2017, one of the most “calm” years in the financial markets, most years have several intra-year market declines. Even years that have had significant gains in the stock market had intra-year declines. Please review the chart below which provides a summary of the performance of the S&P 500 since 1980 along with the greatest market decline in each of those years.
Intra-year Declines vs. Calendar Year Returns – S&P 500
Past performance is no guarantee of future results. This data is not intended to represent the performance of any specific portfolio. The S&P 500 Index measures the broad US stock market. It is not possible to invest directly in an index.
Two of the best strategies to weather market declines are to evaluate your asset allocation along with the time horizon of the investment. With the proper asset allocation, investment rebalancing and appropriate time horizon, market volatility may actually be beneficial to your overall investment strategy*.
For more information or to have a review of your plan, please contact us.
*Asset allocation, diversification and rebalancing do not guarantee a profit or protection against loss.