Encompass Financial Planning

View Original

KEEPING YOUR EYE ON THE BIG PICTURE

Regularly, I receive articles from some of the investment companies I work with about different aspects of the stock market. Recently there was a post that made me stop and re-review the information because it hit close to home because of frequent conversations I have had with clients this year.

The U.S. stock market has had two steep declines this year that caught many investors off guard. The first was April 1 through April 19 when the stock market dropped close to 6%. The second was just a few months ago, from July 16 through August 5 when stocks fell roughly 8.5%. When there are sharp declines in the market and the daily headlines remind us to focus on these events, what gets missed is how well the U.S. market has performed for the entire year. Through the end of September, the S&P 500 was up close to 21%. This is much higher than the index’s average yearly return of 10.26% since 1957.

While the stock market volatility can be daunting, it also presents unique opportunities for those willing to look beyond the current noise. An important factor to consider is not overreacting during sharp market declines as it could be a momentary hiccup, in an otherwise upward direction. The Russell 300 had an intra-year decline of at least 10% in 25 out of 45 years since 1979. Of those 25 years, 17 of those years, the index ended higher for the year.

Navigating market volatility can be challenging. The stock market will always have ups and downs. How you respond can make all the difference in the long run.