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Five Good Behaviors for a Sell-off
As you are likely aware, we are in the midst of a significant stock market sell-off. Driven by fears about China’s sputtering economy, the S&P 500 has seen a 9.9% loss since last week and is 11.1% off the market’s high in May.
Now is the time to stay focused on your long term goals and remember that acute market events like the current sell off should have no major impact on your financial plans. If you have concerns or would like to have a conversation about the big picture, please give Sean a call at 844-377-4963.
Remember that the most successful investors are able to separate emotion from investing. “The investor’s chief problem—and even his worst enemy—is likely to be himself,” legendary investor Benjamin Graham reminds us.
Here are five things that can help you better control how you react in the face of any difficult market situation:
- Don’t Panic. Since 1900, there have been 35 declines of 10% or more in the S&P 500. Of those 35 corrections, the index fully recovered its value after an average of about 10 months.
- Think long term. Even the sudden drops in the past few days are well within the long-term norm. The more you fixate on the news, the more volatile and risky the market will appear.
- Know Yourself. Ask yourself honestly: are you prepared to withstand further decline? Are you well-diversified and prepared for a potentially bumpy road – or are you concentrated or have near-term needs for cash. The facts above about the long term benefits of investing won’t matter if you take drastic action at the worst time.
- Review Expectations. We have been in the midst of a seven-year bull market. Keep in mind that results like that are unsustainable and your expectations may have become unrealistic. It often takes a “healthy” correction to resync the markets for further moves upward.
- Look forward. The truth is, we can’t predict what will happen next. Stocks could drop, they could dive, stay flat, or even bounce right back. Two signs of strength in the U.S. economy have been job creation and housing. Unemployment now is 4.3 percent, almost half of what it was in the aftermath of the crisis. Housing has improved and prices are rebounding. These are lagging indicators, meaning they have likely already contributed to the strength in the markets over that past few years. Oil is down nearly 60 percent from last year’s highs. Lower energy costs typically result in higher consumer spending. This is an example of a potential leading indicator, a change in the economy that could spell future growth. No matter what occurs, diversification, patience and self-knowledge are your best weapons against unavoidable uncertainty.
We are confident in our strategy of broad global diversification built appropriately for your individual financial plans and risk tolerance. Ultimately, a sell-off as we are currently experiencing is a buying opportunity. We are not making any structural changes to portfolios, but continue to look for value in quality investments.
Give us a call at 844-377-4963 if you would like to speak further. To your future prosperity.