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Learn How to Stay Calm Amidst Market Volatility

In this ebook, we outline how to stay the course through market ups and downs. Our tips will help you anticipate, rather than fear, market movement.

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What Do I Do When The Market Pulls Back?

What Do I Do When The Market Pulls Back?

August 28, 2023

Market Volatility: A Short-Term Headache or Long-Term Opportunity?

You might have noticed that so far in August, the S&P 500 has declined 4.8% while the Nasdaq, which consists primarily of technology stocks, has fallen 7.4%. If you only look at account values for August, you could be a bit disappointed.

But, if you look at returns for the year so far, you might perk up. The S&P 500 has returned about 15% for the year up to 20 August and the NASDAQ has returned about 30% over the same period.

It’s a reminder, to keep perspective. Over time, stocks have been the most consistent tool to build long-term wealth, but the values of stocks tend to fluctuate quite a bit from time to time.

The last several years have been a parade of negative headlines including trade wars, the pandemic, supply chain problems, inflation, geopolitical risk, elections, debt ceilings, banking crises, bear markets, and many more. So, it’s easy to see why markets might jump around a bit.

When you couple all this news with human nature things get worse. Behavioral scientists talk about a phenomenon called risk aversion. Humans fear investment loss about twice as much as they like gains. It makes it hard to keep your perspective.

So, I offer a bit of historical context. . . First, let’s look at the big-picture stock market returns.

 Stocks since the great depression

This chart shows the progress of the S&P 500 over the last 100 years. And it identifies a variety of events like wars, recessions, financial crises, and other once-in-a-generation issues. You will notice many temporary pullbacks, but the long-term trend is steady growth.

Remember, we own stocks for the 10-year, 20-year, or 30-year return, not the monthly return.

Even with a few challenges in 2023, like rising interest rates and slowing home sales, the market has only seen 1 pullback of 5% in the first 8 months.

 Stock market pullbacks

This chart shows that the average since 1980 is 4.6 pullbacks of 5% or more each year. And this chart shows that some years had more than a dozen pullbacks. So, things are pretty calm compared to history.

And I always like to remind my clients and friends that volatility is normal. The stock market is a yo-yo on an escalator. The overall trend is growth, but most every year has a significant decline as shown in this chart. We can’t get distracted by temporary bad news.

 Annual returns and pullbacks

Maybe these cool charts have helped calm you down. Maybe not. If you have questions, or would like to talk about the specifics of your investments and your financial goals, I would be honored to visit with you.

Why Long-Term Perspective Matters in Financial Planning

I am an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor. I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.

If you would like to talk about your situation, I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.

And yes, I’m still taking on a few great families to be part of my financial planning practice.

Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.