Market Volatility: Our Thoughts

Article_BreakGlass-MarketCorrectionFEB2018

2017’s strong market performance couldn’t be expected to continue without a pullback occurring at some point. It’s been nearly nine years since the last stock market correction.

A market downturn was inevitable, even though no one could predict when a decline might occur, or how long it might last.

The Dow Jones Industrial Average fell 2,235 points from Jan. 26 to Feb. 5 — an 8 percent decline from its high, including a historic one-day 1,175-point drop on Feb. 5. Although that sounds like a lot, it’s really not all that unusual. After all, we had enjoyed a huge increase from Jan. 1 through Jan. 26.

And the roller-coaster ride continued for the rest of the week. On Tuesday, Feb. 6, the Dow closed up 567 points, nearly recovering half of Monday’s losses. On Wednesday, the Dow closed only 19 points down, but then on Thursday, the Dow dropped 1,033 points, or 4.1 percent. On Friday, the Dow returned to positive territory, closing up 330 points, or 1.4 percent.

So, by the end of the week, the Dow was down 2,426 points, or 9.1 percent, from its Jan. 26 high. 

For some perspective, consider this: The market sell-off is much smaller than the 26 percent drop the S&P 500 took during the Crash of 1987, and the 24 percent fall the S&P 500 took in the first eight weeks of 2009.

We understand that what you see in the headlines may cause you to worry — it’s difficult to watch what’s happening and not feel concerned. This is why you should ignore the headlines. 

Now the question becomes: What should you do during a market correction?

Sadly, more than three-quarters (77 percent) of respondents to a recent survey conducted for the American Institute of CPAs said they believe it’s important to make financial decisions quickly when new financial news becomes available.

Instead, we believe now is the time to do the exact opposite — go slow.

A few key points:

  • Now is the time to be disciplined and focused. You don’t want your short-term focus to force you into selling low only to regret your actions down the road.

  • Take a long-term approach to investing. What happens tomorrow, next week or even next month shouldn’t lead you to a financial decision that you may regret later.

  • Think of this market downturn as a buying opportunity. Think of stocks as potentially being “on sale” and this dip as an opportunity to buy assets that are undervalued.

Finally, now is an excellent opportunity to speak to an independent financial advisor, especially if you don’t feel confident about your portfolio or financial plans and want to work with someone to develop a long-term strategy.

If you don’t already have a relationship with one, we are here to help. Schedule a conversation with an Edelman Financial Planner today. Tell us your financial goals and we’ll help you decide what to do next.