Oct 12

Five Reasons You Should Not Panic in the Face of Market Volatility

by Craig Buckhout

1.  It is not really “different this time.”  Vanguard, in a recent study entitled “Stock Market Volatility:  Extraordinary or ‘Ordinary’?”, concludes that recent volatility appears extraordinary compared to the relative calm of the markets in 2010, but is in fact “ordinary” when compared to similar periods characterized by major global macro events – they cite the Asian currency crisis of 1997, the Russian debt default and bailout of Long-term Capital Management in 1998, the tech market bubble (2000-2002), and of course the financial crisis of 2008-2009.  Market volatility spiked in similar ways during each of these events as markets tried to re-price risk in the face of startling new information.  This time it is political paralysis and the European sovereign debt crisis.  So the reason is different, but the market reacts to crisis in similar fashion, over and over again.

2.  Diversification provides a remarkable amount of protection from volatility.  Information in the charts below is taken from the same Vanguard study mentioned above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.   The only way to fully participate in the up days is to be able to withstand the down days.  Volatility refers to moves in both directions.

4.   Remember that you are investing and not trading.  “Sitting out” the current volatility is an appealing notion, but timing the market is something better left to speculators and traders.  Trying to benefit from correct predictions of short-term moves in the market is not a long-term investment strategy.

5.   “The market has been volatile and just dropped dramatically – what do I do now?”  This is a bad question and bad questions do not lead to good investment decisions.  A better question would be, “Am I still taking an appropriate amount of risk considering my goals and time horizon?”

Sticking to your disciplined investment strategy is a better response than panic.  When stock prices tumble and bond prices soar, it provides an opportunity to rebalance your portfolio by taking some profits from the bonds and buying stocks at reduced prices.

About the Author

Craig Buckhout is a Chartered Financial Analyst, and Principal at Rockbridge Investment Management.  “In the early 1990s it became clear to us that ordinary people were going to need help managing their substantial savings, as 401(k) plan assets began to replace pensions as a source of retirement income. After spending the first decade of my career in the world of corporate finance, I was excited to work with clients and apply institutional investment principles to help them achieve their goals.”  Craig holds his BS & MBA from Cornell University, and is a member of the SUNY ESF (College of Environmental Science and Forestry) Foundation Board – Treasurer, CNY Community Foundation – Board Member.
Learn more and/or Contact Craig


You Might Also Like

Other articles filed under Investing

The 5-year Countdown to Retirement

August 16, 2018
While you should think about retirement planning as early as possible, the five years leading up to retirement are critical. If you believe you are 5 years or less away from retirement, now is the time to seriously take a...
Continue Reading

How to Prepare for a Market Correction

August 6, 2018
It’s simple. Don’t. A common question we receive is “how do I prepare for the inevitable stock correction?”  There are two answers to this question: the one you want to hear (which is wrong), and the one you don’t want...
Continue Reading

Market Commentary – July 2018

July 24, 2018
Stock Markets Returns from various stock market indices over several periods ending June 30, 2018 are shown to the right.  Here are a few highlights: Domestic stocks continue to lead the way. REITs were up nicely for the quarter, but...
Continue Reading

The Least Prepared in Decades

July 18, 2018
A recent headline in the Wall Street Journal declared, “A Generation of Americans Is Entering Old Age the Least Prepared in Decades.”  The article starts out by stating, “Americans are reaching retirement age in worse financial shape than the prior...
Continue Reading

Investment Committee Thoughts from Friday 4/27/18

May 8, 2018
Last week, we introduced you to our weekly Investment Committee meetings. When we met for class on 4/27/18, we began our discussion on the subject of an "optimal portfolio." The centerpiece of investment management is portfolio construction. Alongside financial planning,...
Continue Reading

‹ Back to Blog Home

getting started is simple

315.671.0588 info@rockbridgeinvest.com Schedule a meeting Sign Up for Our Newsletter