Thoughts on Current Market Volatility From a 30-Year Industry Veteran
In times of uncertainty, many people look to professional advisors to get their thoughts on what is currently happening in the economy and the markets and how these conditions might affect them and their personal financial plans.
I have been advising clients and helping them work towards their final goals for over 30 years, helping them survive and benefit from markets similar to the one we are currently experiencing. Please understand I don’t believe anyone can accurately forecast future market movements, especially me, so don’t take any of these observations as predictions of future market movements.
- Current pullback in the stock market is very normal by historical standards.
- You may be surprised to learn that earnings of S&P 500 companies collectively have not decreased over this period – it is the price investors are willing to pay for those earning that has decreased.
- Prior to January, the market had gotten to a point where future earnings were being purchased at premium above historical average prices (expensive!). This current market decline has brought stock prices represented by the broad market indexes back closer to fair value, which provides a better level for future growth.
- Whenever uncertainty rises about the ability of companies to deliver expected future earnings, prices will drop to compensate for the perceived additional risk. This is completely normal! If equities didn’t have the ability to go down, they would pay us what other investments that can’t go down pay us – think CDs as an example.
- Market downturns have historically always been temporary and market advances eventually become permanent. Meaning the advances reach a point in the future where subsequent downturns never reach the new highs achieved after the previous downturns.
- Downturns or pullbacks in the market like we are currently experiencing have generally represented great buying opportunities; I don’t see any reason this time should be any different.
- Times like these underscore the need for having broad diversification in your investment portfolios. The real risk in market pullbacks is not that the markets went down, rather it is having to liquidate something when it is down. If you own a wide variety of investments including cash, you should have something in your portfolio that you can liquidate when you need it that won’t hurt you.
If you would like to discuss your investments and the market in relation to your financial plan, contact my office – I’d love to set up a time to talk with you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
