I don’t focus on what I’m up against. I focus on my goals and I try to ignore the rest.
-Venus Williams, American professional tennis player, 2nd in all-time rankings
Last year, stocks marched higher with only minor pullbacks. The largest decline from peak-to-trough for the S&P 500 Index last year was just under 3%. It was a year that lacked turbulence and rewarded diversified investors. Since February 1, volatility has returned. It’s a reminder that periods of relative tranquility don’t last forever. In our opinion, the long-term investor should look past volatility, although we recognize it can create uneasiness.
If we were facing serious economic problems, something that might be signaling a recession, it would be a cause for concern. Right now, it doesn’t appear so. By the close of April, the dollar reached its highest level since January, while yields on 10-year Treasuries approached 3.0% for the first time since 2014 — signs that the world views U.S. economic growth as on the rise. Shorter term, however, headline risk continues to whipsaw investor sentiment.
Causes of volatility
In our view, several issues have stirred up the recent volatility. President Trump announced he will impose steep tariffs on steel and aluminum imports, fueling concerns over protectionism and the potential impact on the economy. April brought the impending tariff war between the United States and China. Tensions between the world’s two largest economies certainly affected stocks both home and abroad. Investors viewed the corporate tax cut and the paring back of regulations favorably. Trade tensions, however, have created uncertainty. While the odds of a major trade war remain low, all this has injected uncertainty into the market.
Escalating strife in Syria posed an additional reason for investors to be concerned, and troubles popping up in the tech sector have added to volatility. For example, Facebook is embroiled in a controversy over privacy and data-sharing, while Amazon and its founder, Jeff Bezos, have been in the headlines. Yet, talks between North and South Korea helped ease investor tensions.
We’re providing an explanation for the recent volatility because we believe one is in order, but we caution you not to get lost in the weeds. Day-traders care about minute-by-minute swings in stocks prices. Long-term investors sidestep such concerns. So, let’s step back and gather some perspective by reviewing the data.
According to JP Morgan:
- The average intra-year pullback (peak to trough) for the S&P 500 Index since 1980 has been 13.8%.
- 21 out of the past 38 years had a correction of at least 10%.
- 19 of the 21 years that experienced an official correction (10% or more) still finished higher on the year.
- The average annual return for the S&P 500 from 1980 to 2017 was 8.8%.
These points are an evidenced-based way of saying turbulence surfaces from time to time. Patient investors who don’t react emotionally have historically been rewarded. We understand that some degree of risk is inevitable. What is clear is that the market is capable of recovering from intra-year drops and finishing the year in positive territory, which should encourage investors to stay the course when markets get choppy. Our recommendations are designed around your risk tolerance, and the recommendations are designed with your long-term goals in mind.
Have you tried to write out your goals? Looking at a blank screen or blank page sometimes makes us feel that what we’re trying to accomplish is insurmountable. Other times, we come up with something that’s too vague. Yet many aspects of life go more smoothly when clear, attainable goals are set: career, family, personal relationships, and health. As someone who advises you on financial matters, one of ourgoals is to uncover your financial goals. And – this is important – to create a plan that will help you reach your goals. Remember, the goal is your destination. Once we have the destination in mind, we need a roadmap that will get us there.
So, what are your goals? Savings, future specific purchases, and retirement come up often. But these require what might be called “delayed gratification.” You must give up something today in order to achieve a specific result tomorrow. While we can make our money work for us (e.g., through compounding), saving money requires choices between today’s wants and tomorrow’s needs.
Most folks dream of a comfortable retirement. But many fail to save through their firm’s 401(k). For those who are self-employed, it’s important to begin contributing to a retirement vehicle that best fits your needs. We know that multiple options can create overwhelming complexity. But that’s what we’re here for – to help you navigate the murky waters. Saving for the future takes discipline, but it doesn’t have to be a hard slog. Progress toward your goals creates its own sense of accomplishment and satisfaction. Again, we’re here to partner with you.