After two strong years in the stock market (2023 and 2024), we are once again experiencing something entirely normal and expected—market volatility! Gains in the U.S. stock market earlier this year, as measured by the S&P 500 index, have faded into negative territory over the past two weeks. Those who have diversified into International and Fixed-Income holdings are faring much better, which is a separate conversation for another time about the importance of diversification.
For now, let’s focus on the U.S. Stock Market and let me ask if you are presently feeling uneasy and thinking perhaps, that some kind of corrective action might be needed? Let me urge you to press pause and consider three very important points:
- Timing the Market -Successfully navigating market timing requires making two precise, unemotional decisions: when to exit (before a decline) and when to reinvest (before a rebound). In other words, you must “sell high and buy low” - a nearly impossible feat to execute consistently.
- Selling in a Down Market- If you sell during a decline, you turn what might have been a temporary loss into a permanent one.
- Missing a Rebound -If you do sell and you’re now on the sidelines, you may struggle to find the right moment to reenter. Market recoveries are often sudden and accompanied by high volatility, which leads to more fear and uncertainty. When investors do get back in, it’s typically at a higher price than when exited, meaning they “sold low and bought high.”
As we often say at Henry Wealth Management, a more prudent approach is to“build a portfolio that you can live with and then live with it.”Most of our clients are not 100% invested in equities, so if you happen to be in say, a 60% equity 40% fixed income portfolio, when you see market volatility all over the news, remember that it’s only partially impacting you.
Let’s close by considering a very powerful chart published by First Trust, entitled, Intra Year Declines versus Calendar Year Returns, which covers 1980 through 2024. Let me explain what occurred in 1980 so you’ll understand what the balance of this chart conveys.
At some point during 1980, the market declined 17% from its high watermark. That was the “intra-year,” i.e., during the year decline. Yet by the end of 1980, the S&P 500 was up quite nicely, having advanced 26% from the previous calendar year. How easy would it have been to panic and bail at some point during that 17% slide, and miss what ended up being a phenomenal year?
Take a moment to review the rest of this chart and notice how common, normal, and natural are intra-year declines. Then, trust your well-diversified portfolio and stay the course by weathering this present storm. Know that we're always here to discuss your individual situation, so please don't hesitate to reach out.
