Check out my face in the image above. Am I smiling? Crying? Scared or excited?
This picture was taken at Kingda Ka at Six Flags Great Adventure in New Jersey. It was about 5 years ago; this is one of those pictures that the amusement park sells you that’s taken as you are on the ride (I’ve cropped out the friends & family to avoid making them angry).
It is said FEAR and EXCITEMENT is same emotion, just +/- CONFIDENCE. There’s a part of me that’s smiling on this ride because I am confident that the orange harness and the seatbelt are going to keep me in my seat and deliver me back safely to the platform. Let’s just say I wouldn’t have that same smile if I didn’t have that level of confidence.
On August 5th, 2019, the Dow Jones Industrial Average had its worst fall of 2019. Were you smiling or crying? How about inwardly? Was your stomach in knots? I suppose the answer to that depends on your level of Confidence. Volatility & risk are not the same thing. When a stock is volatile, it means that it tends to make big moves (up or down). When a stock is risky, it means it can lose money (go down). In financial terms, risk is the potential permanent loss of money. Whereas volatility is how rapidly an investment tends to change in price.
When equity markets experience unnerving fluctuation, we suggest you ask yourself 3 questions:
1. Have my financial timelines changed?
2. Have my financial goals changed?
3. Has my risk tolerance changed?
If you’re not sure or if you answered “yes” to any of those questions, then it’s time to have a conversation with your Advisor. The goal is to give you confidence that you’re taking the right amount of risk. And depending on your concerns, it may be time for a review of your financial plan, revisiting your risk tolerance, investigating your diversification, as well as other strategies.
And then – strap in and enjoy the bumpy ride. Get to the point where you’re smiling and can enjoy it because you know you’re going to get delivered to your platform safely. And if we can help deliver you, feel free to reach out.
During volatile times, many investors get agitated and begin to question their fundamental investment decisions and choices. This is especially true for those investors who monitor their portfolios daily and can be tempted to pull out of the market and wait on the sidelines until it seems safe to dive back in. One thing that can be helpful is to understand that equity market volatility is part of the investment experience and is therefore inevitable. Equity markets can always move up and down, especially over the short-term. Some suggest that the only certainties in life are death, taxes and market volatility.
Try to keep things in
perspective. Market pullbacks
(defined typically as between 5 and 10%), corrections (defined as 10 to 20%) and
even bear markets (defined as 20% or more) are a normal part of the stock
market cycle. According to Guggenheim, since 1945, the S&P 500 has declined
between 5% and 10% 78 different times. The average time it took to recover to
its previous highs was only about one month.
(Source: US News and Money Report 6/7/2018)Volatility and risk are not the same thing. When a stock is volatile, it means that it tends to make big moves (up or down). When a stock is risky, it means that it can lose money (go down). In financial terms, risk is the potential permanent loss of money whereas volatility is how rapidly an investment tends to change in price. Volatility does not just imply risk of loss. Volatility simply refers to the price action. Some investments may be more volatile than others. Equity investments as a category are much more volatile than a bank deposit, but that does not mean an investor should avoid investments in equities. Just because an investment is more “volatile” does not necessarily mean it is “riskier” in the long term. Investors should always discuss with their financial advisors the potential of short-term volatility affecting the daily value of their investments and plan their investments accordingly
movements of the market are unpredictable and do not abide by any average
markets are never going to produce straight line returns for investors. For example, in 2017, the stock market had an
unusual year in which it did not even deliver a correction of 5%. Meanwhile, 2018
brought investors the steepest correction in a decade during the fourth quarter
and that year included a greater than 10% decline in the first quarter.
At any time, the equity markets could see a retreat of 10% or more which is referred to as a market correction. Here are four facts that can help investors understand market corrections.
1. Corrections are a part of the investing experience.
Since 1950, the S&P 500 has undergone 37 separate stock market corrections of at least 10%, not including rounding (i.e., declines of 9.5% to 9.9%). Considering that there have been over 69 years since the beginning of 1950, this works out to a correction, on average, every 1.87 years. (Source: The Motley Fool 5/2019)
2. The average length of those corrections was about 6 months.
According to data from stock market analytics firm Yardeni Research, the S&P 500 has spent 7,135 calendar days in correction since the beginning of 1950. Since then, there have been 37 corrections (of at least 10%). This works out to an average resolution time of 192 days, or slightly more than six months. Of these 37 drops in the market, 23 of them have resolved in 104 or fewer days, with only seven lasting longer than 288 days. 11 of the 14 instances that lasted longer than 104 days occurred between 1950 and 1984. (Source: The Motley Fool 5/2019)
3. “Rally” days outnumber correction days 2.55-to-1 since 1950.
Since the beginning of 1950 until May 13, 2019, there have
been a total of 25,335 calendar days and over 69 years of data. During this
time span, the S&P 500 has spent 7,135 of those calendar days tumbling from
a peak to a trough. This means that for the other 18,200 calendar days, the
S&P 500 has spent its time rallying from these correction lows. This ratio
of upward momentum (18,200) to correction (7,135) is a healthy 2.55-to-1.
(Source: The Motley Fool 5/2019)
1. Market volatility is not the same as market risk. 2. Corrections are a part of the investing experience. 3. Beware of media magnification 4. Avoid making emotional decisions 5. Focus on your personal goals and call us with any concerns.
Big up days occur within two weeks of big down days 60% of the time.
Morgan Asset Management releases an annual report
titled, “Staying Invested During Volatile Markets.” This report looks
at the S&P 500 over the trailing 20-year period and calculates what an
investor would have made had they stayed invested, rather than trying to time
the market by jumping in and out when they saw the first signs of trouble.
Oftentimes, missing the S&P 500’s 10 best days means losing more than half
of your would-be 20-year returns, missing around 30 of the best single-session
gains, resulting in a loss over the 20-year
period. (Source: The Motley Fool 5/2019)
interesting observation in this annual report is the timing of when these worst
days and best days occur. Although it has varied slightly from report to
report, since the trailing 20-year dates being analyzed are changing, roughly
60% of the S&P 500’s top single-session gains occur within two weeks of its
10 largest single-session losses. This means that selling equity positions
during big down days may cause you to miss out
on the market’s biggest single-day rallies, which are impossible to time.
of Media Magnification
One of the
biggest challenges investors face is how to tune out the magnification of
financial issues by the media. With thousands of media outlets all
thirsty for viewers, some outlets resort to scare and fear tactics to attract
an audience. Know that volatility is a part of the investment experience,
however, it can still become difficult to make rational investment decisions
when the markets are fluctuating. During these times, it is prudent to resist
the temptation of watching news reports and obsessively watching your portfolio
performance. Adhering to a long-term investment plan often requires taking the
news with a grain of salt and putting spur-of-the-moment advice of others on
the back burner.
often emotion, not logic, can overshadow investing habits, so the first step in
declaring this mental independence is realizing how these influences, known as
biases, affect us. Sometimes, the closer
you put a short-term lens to your investments, the more likely you consider
decisions that deviate from your long-term strategy.
should an investor
do in a volatile market?
In times of crisis, many people tend to overreact and sometimes do not make the
best decisions. During volatile markets, it might be best to revisit your
plan. Remember panic is not a plan.
When equity markets
experience unnerving fluctuations, we suggest you ask yourself three questions:
Have my financial timelines
Have my financial goals
Has my risk tolerance
If you answered “YES” to any
of these questions, then it is wise to discuss these changes with us. An
investor needs to be prepared to build a plan that includes risk
awareness. One of our primary
responsibilities as your financial advisor is to consistently keep in touch
with you and monitor your situation. If
you have concerns, some questions to ask us include:
Can we review my financial plan?
Can we revisit my risk tolerance?
Are my investments diversified?
What are my fixed income investments?
Has the volatility presented any good opportunities?
While equities have risen, the continuing backdrop of a weakening
economy, trade war fears and interest rate concerns always offer the
opportunity to recheck your plan. Today’s traditional fixed rates might not
help many investors to achieve their desired goals, so most investors may still
need to include a strong mix of equities. Markets can continue to rise but they
also could head lower.At the end of the day,investors
should always put their primary focus on their own personal goals and
objectives. If anything has changed for
you please let us know.
Let’s focus on YOUR
goals and strategy.
Our primary objective
remains to continually understand our client’s goals and to match those goals
with the best possible solutions.
Our advice is not one-size-fits-all. We will always consider your
feelings about risk and the markets and review your unique financial situation
making recommendations. If you would like to revisit your specific holdings or
risk tolerance please call our office or discuss this at our next scheduled
We pride ourselves in
a schedule of
regular client meetings, and
education for every member of our team on the issues that affect our clients.
A skilled financial advisor can help make your journey easier. Our goal is to understand each of our client’s needs and then try to create a plan to address those needs. Should you need to discuss your investments, please call our office.
One of the reasons we don’t do our financial planning, tax planning or estate planning, is because we don’t really feel moved by the possible future. A Harvard business report (which you can find here) showed that people will make better decisions when they stopped seeing their future selves as “strangers.”
I was reminded of this as I played with the FaceApp, which has been making it’s way around social media lately. (Yes, I am aware that the Russians may now have my likeness, but I’m pretty much everywhere on the Internet anyway, why not one more place? I’ve since deleted the app anyway.)
It was eye-opening to see what I may be looking at in the mirror 30 to 40 years from now. In fact, I also found it insightful to see what the app had to show for my likeness 30 years ago. What kind of legacy do I want to leave behind? What is 83-year-old Neel trying to say to 43-year-old Neel? And for that matter what does 43-year-old Neel want to say to 13-year-old Neel? What about you? What would you tell yourself you get the opportunity speak to yourself 30 years ago? What do you want your legacy be? And how we accomplish that? That’s where we can help. If we get together I would love to hear your goals, dreams and wishes. Maybe that person in the picture doesn’t have to be such a stranger.
Finally, we celebrated my mother’s birthday over the weekend. My maternal grandfather (Dada) sat next to me at dinner. We decided to use my FaceApp picture and do a side-by-side with his picture. Check it out below. Made me think – maybe I didn’t need the app after all. Feel free to reach out if you want to chat about your future, present and/or past.
Over the past few years, Disney has been creating live-action versions of their animated hits. Most recently, one of my personal favorites, The Lion King premiered. Being one of the most iconic Disney movies of all time, there is no way I can miss a chance to see this movie with my kids. There are many life lessons the movie teaches you, like: the importance of being cautious and mindful of who you trust, the effects of losing a loved one, learning that lost loved ones will always be a part of you, and more. Among the many takeaways from this movie, there is certainly emphasis on one thing: the circle of life. We are born, we grow up, we grow old, and we pass on leaving our legacy behind us. When leaving our family behind us, we want to make sure that our loved ones can “Be Prepared” for their future. Family disputes, such as those between uncles and nephews, are all too common (one of the reasons Estate Litigators get paid so much!)
Just as life begins, it comes to an end, and when it does end, we want to be sure that everyone we hold dear to us about will be taken care of. “Hakuna Matata for the rest of your days” may not be 100% realistic, but your planning need not be difficult. I would be happy to help make your planning easier.