Investors’ fears of stock market volatility are often emotionally guided and can generate passionate desires to exit equity market participation. Such emotions tend to appear heightened during times of equity market record highs, as is the case currently. We want to urge investors, however, that the simple concept of markets needing to enter into correction territory, simply because of broad based gains, is not a rational conclusion. From a tangible standpoint, we know that global equity markets retain a very high probability of generating a 10% correction each year in addition to a 20% correction once every three years. This is not new and it’s a phenomenon that every investor has experienced over the past 5, 10, 15, and 20 years. To assume a lack of meaningful forward looking volatility is not rational and it’s something all investors should remain cognizant of. What’s even more important, however, is to gain an understanding of what volatility means post-the-fact. Meaning, what can we learn from normal historical volatility cycles as a means of maintaining, or increasing, equity market participation? The historical data provided below provides a working example of how emotionally guided decision making may have a materially negative long-term impact for those investors exiting equity market participation amidst volatility. By focusing on your financial plan, and by utilizing a proven investment platform as a tool within that plan, investors may find themselves notably better off than what they may perceive as possible.
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Source: Bloomberg. Dimensional. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All information is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Data is sourced through http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Investment advice offered through CX Institutional, a Registered Investment Advisor. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.