Managing your financial life is not just about money.

Volatility

I’m sure you’ve noticed, volatility has returned to the stock market.  As of 4 PM on Thursday the 8th the S&P 500 Index was down 10.2% from its record high of January 26th.  We have a few thoughts:

Volatility is normal

The lack of volatility in recent years has been the outlier historically speaking.  The stock market has a correction (defined as a 10% drop) about once per year, and a bear market (defined as a 20%+ drop) every 3.5 years or so.  The past 2 years of correction-free, upward markets were nice, but we’ve always known that it was a temporary phenomenon.

We are prepared

We discuss risk tolerance at every meeting, and as a result we are as confident as we can be that our clients are positioned appropriately from a risk/return point of view.  We manage broadly diversified portfolios, and our more actively managed (non-tax-sensitive) strategies are currently conservatively invested in preparation for a market downturn.  On top of that our clients who rely on their portfolios for income have “buckets” in place to fund their future distributions.

Long Term, not Short Term

Over the long run, the only reason that stock prices rise is because companies grow their earnings and thus become worth more. That is why all those long term stock charts go up!  In the short run, it almost never works that way.  For many different reasons (all unpredictable), sometimes stock prices are higher than they are actually worth, and other times stock prices are lower than they are really worth.  When prices are too high (like now), they ultimately get taken down a peg or two (downward volatility) to where they should be.  When prices are too low, they ultimately get back up to where they should be (upward volatility).   The odds favor long term investors who don’t get too excited or depressed about market volatility.  That would be you.
McNamara Financial Services and our clients have weathered corrections or bear markets in 1987, 1990 (2), 1997, 1998, 1999, 2000, 2002, 2007, 2010, 2011, and 2015 (2).  We’re confident that we will make it through whatever 2018 has in store for us.
As always, call us with questions/concerns
Alyssa, Justin, Kirk, Mike, and your Team at McNamara Financial CONTACT US

 

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