It has been almost four years since the broad stock market experienced a significant pullback, a correction of 10% or more. While the length of this interval without a correction is unusual, what is transpiring now is more typical…it is just been awhile since it occurred. Sharp pullbacks have always been a part of the markets and are the primary reason premium returns accrue to long term investors. It’s simple, but not easy.
Over the past 35 years, stocks have declined intra-year by more than 14% on average. Despite this, in 27 of the past 35 calendar years, the S&P 500 has posted positive annual returns. The chart nearby depicts The Market’s Response to Crisis after 1,3 and 5 years. This tells a powerful story for the importance of staying focused on long term goals.
Markets adjust and react to minute-to-minute changes in information. Assuming that you have well formed long term reasons to invest (goals), you don’t need to react. You can’t control what will happen in the markets today. You can control how well you are diversified so that “ordinary” market corrections don’t tempt you to unravel well laid plans.
So, what’s next for the markets? No one knows for certain. What matters most is how you react or perhaps better, how you don’t react. Remember the reason you invest (your “why”), take a deep breath and move ahead. Avoiding short term anxiety about the markets is about…more than numbers. Ready for a real conversation?