Market Volatility Returns

Sometimes the stock market seems to go in the right direction for so long that we forget that volatility is part of the game. Sure, day-to-day the market moves up and down, but I’m referring to gains and losses that feel more substantial.

Earlier this month, on August 5th, the S&P 500 dropped 3%, its worst day in almost 2 years. This caused some people to feel a bit anxious about the direction of the stock market. Of course, now just a couple of weeks later the market has recovered from that dip and is nearly back to the high this year set on July 16th, so if you avoided looking at your statement or tuned out the noise you wouldn’t have experienced the emotional roller coaster.

The chart below shows stock market returns by year (the gray bars) as well as how much the market went down at any point during that year (the red dots). This is a reminder that volatility is normal and should be an encouragement that despite the ups and downs, the market produces gains more often than not.

Of course, it’s imperative that your investments align with how you plan to use the money you’ve invested. Your asset allocation should align with your time horizon and risk tolerance to ensure that there is a plan to avoid having to sell assets during significant market dips. The chart below shows rolling return periods for stocks, bonds, a 50/50 blend of the two, and cash. As you can see, even long-term returns can vary significantly, but your assets must align with your goals for a successful investment strategy, especially if your assets support spending needs such as income in retirement.

If you’re wondering if your investment strategy is right for your situation, I’d be happy to review it with you. You can reach me at advisor@blakegallion.com.