We purposefully do not often comment on short-term stock market moves. The reason is simple. For our clients who have investments in stocks, we have earmarked that money for needs far in the future. That money isn’t needed tomorrow, next month, or even next year.
And while we typically do not offer commentary on stock market gyrations, we believe the month of February offered a wonderful reminder for investors. Here’s why.
The market galloped to a tremendous start this year, hitting a high point near the end of January – up 7.5% in a matter of weeks. Keep in mind, the average monthly gain for the market since 1980 has only been approximately 0.8%.
In other words, when the market* hit its high near the end of January, it had registered a price gain more than nine times higher than the average monthly price gain. Whoa, Nelly!
Then something interesting (….or scary or nerve-wracking or startling) happened. The market started to fall. In fact, from the high point on January 26, the market fell just a bit more than 10% in a matter of two weeks.
On cue, the media trotted out fear-inducing headlines, as the media is prone to do.
But despite the blaring headlines, the stock market drop was anything but uncommon. In fact, it was down-right ordinary.
History serves as a great guide. Since 1928, a loss of 10% or more has occurred a little more than one time per year on average, according to Bespoke Investment Group.
If not unexpected, then, what was the drop in the stock market in early February? A gut check.
If the recent sell-off left you concerned or panicked about your portfolio, it’s a good indication of how you will feel in future market swoons. It also means you may be liable to make emotional decisions with your money. Mixing emotions with money is a terrible combination, and one that is likely to cost you dearly.
If a stock market drop of 10% causes you angst, it’s a sign of two things: The risk level of your portfolio may need to be adjusted and/or your expectation about investing in the stock market may need to be adjusted. Keep in mind, for long-term investors, a drop in the stock market is one thing and one thing only. Good news. When the market drops, we have the chance to buy into the market at a cheaper price than we could before.
If the market activity in early February worried you – and if you are near or in retirement those feelings may have been completely justified – now is the time to make a change, not after the market drops and emotions get the best of you.
What was your gut telling you a few weeks ago?
*Defined as the S&P 500