Ask your advisor»
Market volatility? Yes, please!
Over the past 6 - 12 months, client meetings have been quite enjoyable. Why wouldn't they be? When global markets "co-operate", our client portfolios share in that success. But I would be remiss if I didn't remind clients that the "goings" won't always be good.
I can't stress the importance of remaining disciplined when volatility, inevitably, rears its ugly head.
Attached is a chart that illustrates the performance of $1 invested at the peak of the market prior to the 5 most recent market downturns since 1980 (at least -20%). We are comparing the results of two portfolios 5 and 10 years following the date of the market high point: 100% stocks and a balanced portfolio of 60% stocks/40% bonds. The latter portfolio having an element of safety from the bond exposure.
Click here to view an enlarged version of the chart
The "balanced portfolio" recovered its paper losses and provided growth over the next 5 and 10 year periods (following the market high) in all 5 market downturns. The 100% stock portfolio recovered in all but one 10 year period, after the market high.
All types of investments come with some form of risk. The stock market's risk is the volatility of market value. A guaranteed investment's risk is the loss of purchasing power over time.
In my opinion, the most important investment conversation is had at the initial stage of formulating the investment plan. The question then becomes, which risk are you willing to accept? The answer should be the one that provides the rate of return necessary for the success of the long-term plan.
If you are invested in the market, then you have accepted the fact that the market (and your portfolio) will fluctuate in value. Stay confident knowing the risk you have taken on will provide the returns that lead to your successful long-term plan.
|