Market Correction = Mindset Correction
Written by Joel Bengds
Stock markets around the globe have experienced a great deal of market volatility over the last quarters of 2015 and now in 2016. As you know, in 2015 the equity markets experienced a correction (i.e. when an investment declines 10% or more off a recent high) and then spent most of October recovering. Now markets are back in correction territory. This certainly can cause a range of emotions when looking at your portfolio.
We want to remind you that in a diversified portfolio there are stock and bond categories that react differently to events going on in the domestic and global economies. Your portfolio has been built knowing these market events will happen. We know there will be times of upside volatility and growth and also times of downside volatility when the news is not good for the stock market.
If you are taking distributions from your portfolio, it is important to remember that you have bond funds in your portfolio that are maintaining their value during this equity market decline. When you take a distribution from your portfolio, we are able to sell the funds which are up or stable in value during this time and leave the declining equities alone.
For those of you still in the accumulation phase of life, remember that buying opportunities are available when the markets are down in value. Think of the situation this way; you are happy when you go to the store to buy a product and don’t have to pay full price because the item is on sale. When the prices of many equity funds drop, you are buying ‘on sale’. Your portfolio is benefiting because you are able to buy more shares now that the price is cheaper. This happens when you add money and we rebalance your portfolio.
During times of market highs and lows there are two emotions that commonly trip up investors; namely fear and greed. When the markets are up, investors naturally want to buy more because we think it will continue its charge up. When markets are down and fear creeps in, there is a desire to sell. It is at these two times when a disciplined, diversified approach to investing is beneficial. Consider HSC as your emotional circuit breaker.
Even when the markets are going up we do not recommend looking daily at your accounts. In today’s technology filled world you can view your accounts every minute no matter where you are. Focus on the long term and remember the goals on which we have built your portfolio allocation. These volatile markets may be around for a while, but remember: value stocks behave different than growth stocks, and domestic stocks have different risks vs. international stocks. Volatile markets are not a surprise. Corrections, bear markets, recessions and bull markets are all part of a long term portfolio return.
We want you to sleep well at night and not worry about market events. Much like at the ocean you can stand on the beach and look out to the horizon and it looks so peaceful. However, if you focus on the waves pounding the shore you miss the pleasant sunset on the horizon. Focusing on the long range can and will give you a better focus. We do want you to sleep well at night; if you are not, please call. A good piece of advice – refrain from constantly looking at your portfolio.