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"To appreciate the beauty of a snowflake it is necessary to stand out in the cold."
Important Dates:
February 18
: Our office is
closed
for President's Day
April 19: Our office is closed for Good Friday
We are now accepting applications for our Annual Scholarship Program!
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Street View: Putting the Recent Market Rally Into Context
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Resource of the Month
On your way home from work, do you drive in the slow lane or the fast lane? Each person has a different propensity for risk. When investing, this risk propensity may be used to help assess your asset allocation.
Check out one of the many helpful resources on our website, the
Risk Tolerance Questionnaire
for insight into your own tolerance.
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The Stock Market Drops. Now What?
In October 2018, the Dow Jones Industrial Average, a widely followed measure of stock-price performance of 30 of the largest U.S. companies, dropped 1,380 points in just two days. While that sounds scary, it was just a 5% move, taking the index back to mid-July 2018.
Still, one of the things you might have noticed when your funds have been doing well, you feel pretty euphoric, but when they're down, you feel a lot worse than the pleasure you felt when they were doing better. This is a psychological effect known as loss aversion, and it's believed to be hard-wired into our brains.
The best way to respond to these emotional swings is to try to take emotion out of the equation altogether. Over long market cycles historically, markets have moved up, although, as always, they fall eventually. It's that long historic sweep that you should focus on, not short-term movements.
You should also pay attention to the things you can control in investing and ignore what you cannot change. Here are a few tips to keep in mind:
- Diversify your investments. If you're well diversified across stocks, bonds and cash, the likelihood of suffering significant losses may be lower. If your investments are concentrated, it's like putting all your eggs in a single basket. If the basket falls, there's a good chance that those eggs will be broken. But if you spread your eggs in multiple baskets, the risk that all will fall at the same time becomes significantly smaller (and the chance that one or more baskets will rise, also goes up).1
- Look at what's behind the slump. There are lots of reasons why markets rise and fall, and they are not all tied to financial performance of the companies issuing stocks or bonds. It's possible that the broad economy could be sagging, with low growth and/or high unemployment. Or a down market could be partly related to geopolitical events, such as unanticipated election results or instability
in developed or emerging countries, or natural disasters.
- Don't ignore your ability to sleep well.If after examining your asset allocation to make sure it is aligned with your long-term goals and determining what's behind market weakness still makes you feel anxious about big market swings, perhaps you may want to revisit your stock allocation.
On balance, investing for retirement should be a fairly boring exercise. After all, it's a process where results unfold over decades, not weeks or months. Many experts believe the most important thing you can do when markets fall is... nothing. But you should do so only if the decision doesn't keep you up at night.
Recovering from Market Crashes
Historically, falling stock markets eventually recovered. Unless you have a very short timeframe until you need access to your retirement funds, or are well into your retirement years, it may be better for you to remain invested during a downturn. Even people who were unlucky to invest $1,000 in the S&P 500 right before a stock market crash made their money back within a few years if they continued to add $1,000 to the market every year, according to a study from CircleBlack, a financial technology company.2
Great Recession: 2 Years
Dotcom Bubble: 5 Years
1970s Recession: 3 Years
Great Depression: 7 Years
1
Diversification does not assure positive return or protect against losses in a declining market. All investing involves risk, including principal loss.
2
Source: https://blog.circleblack.com/should-you-be-afraid-stock-market-crash. An investor needs to consider carefully the ability to maintain a regular investment program during an extended market downturn. Past performance does not guarantee future results.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
© 2019 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.
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Financial Steward Associates
303-444-5440
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