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Many have been asking my professional opinion on the dramatic uptick in stock market volatility and recent declines in stock indices. I do not have divine insight, but I do have opinions informed by thirty years of experience as an investment advisor.
The U.S. stock market has shown remarkable stability during its climb from the 2008-2009 global credit crises. After this extended period of low volatility and relatively steady gains, it appears anxiety has returned. Of course, there are many issues that deserve our attention: concerns over the Ebola virus and potential for a pandemic, continued unrest between Russia and Ukraine, perpetual unrest in the Middle East, unspeakable cruelty perpetrated by ISIL and other terror groups worldwide, and the orgy of partisan rancor leading up to the elections. One could reasonably complain there is always something to fear, including fear itself.
Conversely, one could point out that economic opportunity exists in every kind of environment. Consumer demand never stops for goods and services delivered to market by publically traded companies that we invest in. Even during our so-called “jobless recovery,” we are witness to increased demand for housing and automobiles, not to mention the latest iphone 6!
The best protection any investor has for market volatility is to know their investment time horizon. If someone expects to be liquidating an investment within three years, those assets should be repositioned for safety, even if the stock market is experiencing dramatic growth. There may be some gains missed by such an action, but when time is short, you must consider the impact of a sudden downturn from which you cannot recover. But for long term investors, short term volatility has minimal impact on their long term opportunity for growth. In fact, mutual fund managers can use the short term decline in prices to purchase favored companies at reduced share prices.
This message will sound familiar to our long tenured clients. Together we have experienced huge market declines (2000-2002 and 2008-2009) followed by rebounds to new heights. While there are no guarantees with investing, perhaps you can find comfort knowing your advisor is available whenever you need perspective or reassurance.
The views expressed are those of Lindsey Randolph and should not be construed as investment advice. All economic information is historical and not indicative of future results. All information is believed to be from reliable sources; however, we make no representations as to its completeness or accuracy. Discuss all information with your advisor prior to implementation.