Don't Be Sidetracked by Media Noise
by Mary Suplee on Oct 23, 2018
Generally I can go months without turning on one of these cable news channels because I find there's very little content of any value contained in them. As I look back, I am not sure that anything they have reported in the last 20 years would have added any value to a financial plan.
The recent breathless buzz has all been about how volatile the stock market is. But, keep in mind, their job is not to help you have a successful investment experience, but to sell advertising. The best way to keep viewers watching, and sell more advertising, is to scare or titillate them. That is why everything they report is so important, verging, it seems, on life or death financial issues.
Don't get caught up in talk of market volatility. They bring this up every time we have a pull back. Instead, step back and gain a little perspective around market movement. How much does the market move on average? The average intra-year pullback for the Standard & Poor's since 1980 is 13.8%. Not only that but there are usually 3 to 4 drops of 5-10% and 1 or 2 drops of 10-20% in any given year.
What does this tell us? That ups and downs in markets are normal. That is the risk investors weather in order to earn market returns. What was not normal was the market we saw in the third quarter of 2018. There were no days in the quarter just ended where the market had a 1% move up or down. Think of that: no daily moves of 1% or more. This is the first time since 1963 that this has happened.
Now the market is returning to a more normal pattern. Historically, since 1950 the most 1% changes have occurred in the month of October with the fewest in December and February. This October has not been as volatile as February so far. Can we use that information to improve our plans? I don't think so except to realize that markets go up and down in the short run and over the long run grow.