It's Time To Put This Market In Perspective

As of yesterday's market close, the Russell 3000 (index tracking 98% of the U.S. investable universe) was down -1.59%. Despite stocks not even being down double digits at any point this year, I keep seeing images of nervous Wall Street traders come across my news stories.

This one's from a CBNC article that came out two days ago. This particular article Strategist Paulsen: Market bottom Is Not In makes an already panicked investor worse. The sentence "we would not be surprised if the stock market tests its correction low yet again and perhaps even fails before reaching a final bottom" appears within the first five seconds. Ugg...

I lose all respect with the comment "Finding a bottom in the stock market may well be a fool's game, but that does not stop us fools from trying". I can't think of a better way to rob trusting clients of returns while blowing tax efficiency and increasing trading costs.

Wait, yes I can. Madoff. I digress.

I've received one inquiry this year from a client regarding the market. One... Maybe I've done a decent job of helping clients focus on bigger picture planning goals. Maybe most of my clients don't care enough to contact me about their last statement- do they even read these things?

I know most people, my clients included, plug into the news at least once in awhile. When they do, seeing images like the one above, reading doomsday market headlines, or seeing a stock ticker tape that has any red doesn't help.

If this market is causing you any financial anxiety, let's revisit a simple behavioral tactic I spent a lot of time with in 2008. Here is a chart showing what the market has done since most of you started investing.

This is how U.S. stocks have performed since 8/31/1995. In the last thirty years, the market has delivered a cumulative 434.08% return. That's 8.70% annualized.

This begs the question- does the current market noise really matter? Let me be blunt. Nope.

Here's why. You know that your investments can lose value. Unless you've been living under an investment rock, you've been told 100 times investing involves risk. Risk is the scenario when you buy a stock and it goes bankrupt. We handle this "unsystematic" risk with diversification.

Volatility is often confused with risk. Volatility is the constant up and down of the market. Volatility (the negative kind) is what bothers investors, not risk. Volatility is what causes panicked investors to make silly choices at the wrong times.

In any stock portfolio investors have experienced recent and negative volatility. Emerging Market, International, and U.S. stocks have all lost value this year. This can happen. It's actually quite normal. In fact, for the last 100 years occasional negative volatility has been a requirement for achieving long term gains.

I agree 2001 and 2008 were painful times. However, no one empties their entire investment accounts in one year. It's not like one day you retire and say, ok great- time to cash out my IRA and buy bank CDs. Retirees should expect to continue investing for 1.5 to 3.5 decades. Discontinuing a sensible investing strategy in retirement exposes someone to inflation risk. There's never been a rolling 15 year period when a globally diversified portfolio failed to produce a positive return.

Let's agree that the recent market events of 1. potential interest rate increases, 2. China's slowing economy, and 3. bottom of the barrel (pun intended) oil prices are interesting, but that's all. These market influences will pass. They will be replaced by new market forces, both good and bad. There's nothing you can do about it. There are no magical portfolio adjustments that should be made, except for maybe These Two.

Whatever happens in the short term, just ride it out. You're a long term investor. You've made it through 2001 and 2008. You've seen firsthand that your investment portfolio has always bounced back. There's never yet been a reason to think otherwise.

#investorbehavior