This year we have experienced some pretty significant gyrations in the financial markets - including a 640 point swing for the Dow Jones Industrial Index on August 9th. Stock market volatility can be stomach churning, but keep in mind that it's something that has occurred before and will most likely happen in the future. Since 1980 nearly half of all years have seen drops of 11% or more.* Both this year and last we've experienced dips in excess of 15%.
Focus on Long-Term vs. Day-to-Day
Investors get into trouble when they start to think like traders. If you invested for the long-term in a diversified basket of stocks for five, ten or more years, then there is little sense getting yourself upset over the short-term day-to-day fluctuation of the stock market. The stock market returns close to 10% per year on average, but you've got to stay invested to earn these higher returns over time. The stock market can be a wild beast which can buck, kick and breathe fire. Returns do not come steadily - instead they come in fits and starts, with dips and plunges that can at times become unhinged from fundamentals.
How Do You Respond to Volatility?
If you become overly anxious and worried, it may be a sign that you are too aggressive with your investments. Perhaps some fine tuning is in order. However, the way to the other side of a volatile market – is through it. Remaining invested in difficult periods is a key element which distinguishes an investor from a trader.
Once you are able to let go of the trader mentality - by focusing on the longer-term - you may be able to let go of the anxiety that comes with volatility.
If you'd like to discuss these topics in greater detail, give our Investments Department a call at 415.674.4846. Our CFS** Financial Advisors can provide information, guidance, and advice concerning your individual circumstance.*S&P 500 Annual Returns, Jan1, 1980 - Dec 31, 2010.
**Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members.