We’ve Been Here Before…

Would you believe it? The stock market is very volatile…again.   All sorts of metaphors are being thrown about…”yoyo, whipsaw, rollercoaster etc.” … we’ve heard them all before, and of course, we’ve been here before.


I think it’s important to remember during these times that volatility is normal, as would be a market correction or a bear market should all this “activity” turn out to have been the beginning of either…and we won’t know that until we’re well into it.


How do I know this is normal? The historical evidence is overwhelming. Going back to 1946, there have been:

  • 53 declines of 10% or more. (once a year on average)
  • 21 declines of 15% or more. (once every 3 years on average)
  • 12 declines of 20% or more. (once every 5 ½ years on average)

At the beginning of 1946, the S & P 500* was at 18. As of market close today (10/9/2014) the S &P closed around the 1928 level, admittedly down some 4.2% from its recent all-time high.   This confirms that not only did the market recover from each and every one of those declines, it grew some too.   It grew significantly I’d say…like 10,611% (if you can call that a %). Maybe it’s easier to say it’s increased in value by 106 times.


These episodes of volatility, historically, have ultimately turned out to be just interruptions in what has so far been a permanent advance. If you have a disciplined strategy, you are less likely to fall into the “it’s different this time” mentality and less like to panic and make big mistakes.


Warren Buffet is credited with saying “The stock market is a highly efficient mechanism for the transfer of wealth from the ‘impatient’ to the ‘patient.’” History, of course, does not guarantee the future, but I think we can agree there is a great deal of historical evidence that supports that statement.


Review your plan or your strategy, if you feel you must do something, but don’t let normal, shorter term events result in decisions you’ll regret.


*Before 1957, S&P 90. Source: Standard and Poors. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance does not guarantee future results.


Kimber Barton is a CERTIFIED FINANCIAL PLANNER™ professional and Senior Partner with Brentwood Financial Partners (5409 Maryland Way, Suite 140, Brentwood, TN 37027, 615.301-5050), an independent firm offering Financial Planning, Investment Advice, Retirement Income Planning, Insurance Strategies and Retirement Plan Consulting. Emphasizing the planning process, he helps individual clients to achieve their personal vision of financial independence and connect their finances to their dreams.


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