Growing up that was my code word with my mother telling either of us we need to relax and take a step back.
If you have been watching the headlines over the past couple of days I am sure you have seen different news anchors get all excited to tell you the stock market has gone down a few percent. Do you ever notice how they really get excited to tell you when bad things happen but are much more calm to tell you good stories? Like that one friend we have all had at one point or another who just always feels the need to let us know all the bad stuff.
Part of the job as an advisor is helping clients relax during times of market corrections and not get jitters for short term corrections. It happens. It will continue to happen. The best thing investors can do is stick to their plan and only make moves when necessary to capitalize on market shifts rather than fear. For example: if during the large market correction of Q4 2018 you decided to go to cash well you would have missed out on the S&P 500 increase over 30% in 2019. Take a look at the graph below. The first shows from the peak in October 2018 to the bottom in December of 2018.
Over that span the S&P 500 lost close to 20% of its value, the largest correction since the recession in 2008. Now, see below for what followed, if you decided to go to cash take a look at what you missed.
Over a 30% return in the 12 months after the large correction in Q4 2018. What does this teach us? The market will always go up big time after a correction? No. However, it does show that if you stick to the plan and invest for the long term you can be rewarded.
Steve, why do I care? Well, if you keep all your money in cash then you don’t. Historically, cash has drastically under-performed the stock market for the long term. You probably aren’t reading my blogs anyways. If you are an investor let it serve as just a guide to just take a step back and understand markets go up and down.
Look at the long term.