The month of January has been awful on Wall Street, with the S&P 500 posting its worst year-opening week in history by losing 6%, followed by daily ups and downs. Global stock markets lost $2.3 trillion the first week of the year, alarming investors who worry about the market forecast for the remainder of 2016. Baby Boomers especially are nervous about the large fluctuations and the impact on their retirement accounts.
The market downturns were a result of a number of factors including:
- Large losses in the Chinese stock market
- Low oil prices
- The recent interest rate increase
However, at times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Over the past 60 years, there have been 15 occasions where the stock market has declined by 20% or more. These bear markets have lasted an average of 10 months and brought stock market values down an average of 29% (Source: Wall Street Journal). While last week was difficult, unfortunately, we anticipate more volatility in the weeks and months ahead.
While easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. Market volatility has increased in recent years and the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.
At Wealth & Pension Services Group, we understand that you are likely concerned with the recent downturn. However, we encourage you to keep in mind that while the stock market may be down significantly, your portfolio is made up of both stocks, bonds, and other assets that are designed to work together to decrease overall volatility. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events.
The only thing we know for certain about the markets is that there will continue to be ups and downs. The recent stock market drop wasn’t a crash; it was a correction. These corrections can occur within any timeframe and can be caused by a number of different factors. Predicting what will cause the next correction and when it will happen isn’t possible. Rather than predict what will happen next, it’s more important to determine how you can position yourself to weather corrections of small and large magnitude.
January’s correction wasn’t the first, and it won’t be the last. In fact, Deutsche Bank’s research shows that the stock market, on average, has a correction every 357 days. Market corrections are an inevitable part of owning stocks. While we don’t know for certain when the next correction will occur, you can prepare yourself and may feel more confident in your plan by speaking with our team. If you have questions about the recent events or your portfolio, call our office at 770.333.0113 x106 or email [email protected].
William "Bill" Kring is the founder of Wealth & Pension Services Group, Inc, an independent wealth management firm serving individuals and businesses near Atlanta, Georgia. As a twenty year financial veteran, Bill offers broad expertise in wealth management services including asset management, fiduciary consulting, retirement, trust and estate planning, as well as insurance and 401(k) plan services. In his past, he competed as a U.S. Cycling Federation class III rider in both road and track. To learn more about how Bill may be able to help, visit the Wealth & Pension website, connect with him on LinkedIn, call his office at 770.333.0113 x106 or email him anytime at [email protected].