It has been said that “flying is hours and hours of sheer boredom punctuated by moments of stark panic.”
The stock market would seem to have some of the same attributes. Most of the time, the popular averages tend to drift along, generally with a moderately positive bias, and relatively modest percentage gains and losses.
Periodically, the averages move sharply, and somehow it feels as though most of the sharpest moves are to the downside. Large moves in the broad based averages are normal, but never cease to be worrisome.
The single most important thing for investors to remember is, over time, the markets go up. From 1926 to 2013 the average return on the S & P 500 has been 10.1%. During that period there have been good periods and some truly ugly ones. But, historically, the markets have eventually reached new, all-time highs.
Some observers have suggested that 24/7 media coverage, which tends to over report, is part of the problem. Perhaps, but market volatility existed long before CNBC.
Investors would be well advised to accept that volatility is one of the risks inherent to portfolio management. The obvious solution is to be confident in your objectives and to work with your advisor(s) to make sure that your long term strategy is intact and continues to be appropriate to your financial situation.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®