Most of our Clients tell us that they don’t often look at the value of their accounts. But if you’ve been watching the stock market lately (hopefully you’ve had more exciting things to watch – like the ROYALS!!!) you’ve seen that the market has dropped a fair amount just in the past few weeks. If you’re keeping score at home, you would have noticed that your account value has dropped by about 5% over that same time-frame.
The market has been relatively strong for the past few years (since August of 2011 when the U.S. debt was downgraded). In fact, we have now gone 3+ years without even so much as a 10% pullback in the market. That, my friend, is very unusual. (Not nearly as unusual as the Royals making the playoffs for the first time in 29 years, but unusual nonetheless!) Market pullbacks are not only normal–they are NECESSARY. If it was a consistent upward climb, everyone would be a stock market investor and there would only be a fraction of the return premium afforded to investors.
As always, a little historical context and perspective never hurts. Consider these statistics since the year 1900:
5% market drops generally occur about 3 times per year
10% market drops generally occur about 1 time per year
20% market drops generally occur about once every 3-4 years
In fact, since 1980 the stock market has had positive annual returns 26 out of 34 years DESPITE the fact that the average intra-year decline has been 14%!
The fact of the matter is, markets will decline. It’s not IF, it is WHEN and HOW MANY TIMES over the course of your lifetime. As we often say, the difference between a successful long-term investor and everyone else comes down to how you react when the market dips. Do you panic and run for the hills, or do you stay the course (or even buy more) when the media tells you the world is ending?
While you won’t find us making rash changes, we continue to monitor your accounts daily and take appropriate action to rebalance your accounts when necessary.
Our advice? Don’t give much thought to short-term movements (up or down) in the market. After all, there are much more interesting things to pay attention to – LIKE THE ROYALS BRINGING HOME THE PENNANT!!
The Retirement Planning Group
11512 W. 119th St.
Overland Park, KS 66213