Market Volatility in Perspective

Market volatility can be scary. But it’s also totally normal and actually a positive thing for long-term investors. This article explains what’s causing the recent market swings and what you should do about it. Hint: put your blinders on and stay the course!

What is it this time?

The most recent rollercoaster ride in the market has been mostly influenced by:

• A looming government shutdown

• Treasury yields rising

  • Investors are betting that the Federal Reserve will taper it’s bond-buying stimulus initiative

• Technology stocks recently falling

  • A reduction in rates makes their future cash flows less valuable and the stocks appear less attractive to investors

Is now any different?

Nope.

We’ve all seen the headlines in recent years that are stirring the market up these days.

• Government shutdown – Been there, done that.

• Treasury yields all over the place – Remember the housing catastrophe?

• Tech stocks leading the biggest swings (up and down) in the market – Early 2000’s tech bubble anyone?

How did the market perform after all these scary headlines? It rose and then some. Is this time any different? I don’t think so.

“The four most dangerous words in investing are: this time is different.” –John Templeton

In addition, however strange, September has been the single worst-performing month in stock market history. So, If history has a way of repeating itself, then it’s completely normal that we are experiencing volatility during these fall months.

What should I do?

Assuming you are a long-term investor with an appropriately diversified portfolio, the best action you can take now might be the easiest: DO NOTHING!

Though it’s easier said than done, now is the time to put the blinders on and stay the course. After all, the market has always awarded investors who stay the course, and I don’t think this time will be any different (see S&P 500 bull and bear market chart below).

Make lemonade out of lemons

If you have cash on the sideline, these market dips are a great time to invest. If you haven’t rebalanced your portfolio in a while, consider your optimal asset allocation (mix between stocks and bonds) and make changes to ensure you’re on target.

You can also use these volatile markets to save on your tax bill. I take advantage of these market dips to tax-loss harvest client portfolios, which can save them up to 1% per year (of their portfolio balance) in taxes! This is especially impactful ahead of the Biden administration’s proposal for a higher capital gains tax rate.

Do you want to talk about how to take advantage of market volatility in your portfolio? Reach out to me at Ben@coveplanning.com or schedule a free consultation call.

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Ben Smith is a fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional with offices in Milwaukee, WI, Evanston, IL and Minneapolis, MN, serving clients virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI).

Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, he sits on your side of the table and always works in your best interest. Learn more how we can help you Do Well While Doing Good!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.