Commentary on the stock market correction. Courtesy of my financial advisor, Sean Curley, at The Retirement Planning Specialists, LLCâ€‹.
“Cable news breathless reporting notwithstanding, I cannot begin to imagine anything more mundane than a 10% market correction, which is about where we are at the moment after the last few days’ worth of unpleasantness. Such things happen EVERY 12-18 months, almost without fail, although it’s been a little longer since we’ve seen the last one. The last time we saw a 500 pt drop, and a 20% correction (which is only half of what we’ve seen since the recent peak), was the 2011 US government debt crisis…and remember that the Dow bottomed out at 9,500 then (and is now STILL 5500 points higher than it was in the Fall of 2011). This kind of correction is not a huge surprise, although you never know when such a thing will actually happen, and they’re never a pleasant experience when they do occur.
The world won’t end, and it’s entirely possible that markets may dip substantially further (or may not) before they eventually recovery and go onto new highs, as they have always done. Every client I had in 2008-9 who stayed invested was glad they did — despite that being MUCH worse than anything we’ve seen this past week, AND more importantly EVERY client who did get out at some point during that correction lost money — some a lot — for having gotten out and missed the rebound. Equities (stocks) have gotten better returns than just about everything else on the planet as long as you can look back, and the “cost” of getting those higher returns is living through scary weeks and months like this. It’s just not possible to get the higher long term stock returns without staying invested, especially during the difficult times.
As far as the causes for this recent unpleasantness: the crux of the issue is an apparent economic slowdown based on data out of China, which itself is not that big a deal, but the concern is that that is a bellwether for global economic activity at large, which it may be. Again, very mundane stuff — and nothing like the 2008-9 global credit freeze, which was much scarier in its economic implications (and yet, here we are still many thousands of points higher and many dollars richer than we were during that spell.) Periods of economic expansion and contraction are, as you know, a inherent and endogenous part of the business cycle, and there is unfortunately — as Warren Buffet has repeatedly pointed out — no way to time our way around them.
For those more inclined towards graphs or videos, here is a very short VideoScribe I put together this morning on the topic of stock returns (and the accompanying volatility) vs. the returns of cash and bonds: http://youtu.be/bH7Qrlp8HLA
As always, happy to talk over so please don’t hesitate to call or email if you’d like to discuss.”