We may have forgotten what a bumpy ride the stock market can be. The last few days have been a good reminder, with some rather large declines. We'd like to provide some perspective on this.
First, don't let the big numbers get to you. As the market has risen over the last several years, these point numbers mean less and less. It's about the percentages, not the points. Recently the Dow was down 1175 points in a day, which one news outlet labeled as the "worst point decline in history". While this may be true, in percentage terms (4.6%), it is certainly not the worst decline ever.
Five years ago, the Dow was at about 14,000. A drop of 1175 points would have been an 8% decline, almost twice as much as it is today, percentage-wise.
Second, market declines are very normal.
- A 10% decline happens on average, once a year and last occurred in August 2015*
- Although the market is down 10% from its January 26th high, it's still up 19% over the last 12 months.**
- It may also be reassuring to know that the market has always recovered from declines. Although past results don't guarantee future results, remembering that downturns have been temporary may help calm your fears.
Third, turn off the TV, put down the iPad or phone. Sensational headlines serve to get your attention and reacting to them is counter to achieving your long-term goals. Now more than ever, news can cause you to make emotional decisions about your investments, and emotions have no place in investing.
Lastly, maintain a well-diversified portfolio. We don't know what the coming days or weeks hold. Uncertainty is part of investing. Despite predictions you will see on television by many experts, no one can predict the future.
That's why, at Oaktree, we don't play guessing games with your wealth. We believe diversification is important - building a portfolio with a mix of different types of stocks and bonds that is based on your long-term goals and needs.
We also believe in staying fully invested and not trying to time the market. No one can know the best time to get in and out of the market. Getting this wrong can have a disastrous impact on your portfolio. Despite periods of short-term declines, the market's long-term upward movement has rewarded those who have been disciplined and patient and remained invested.
If you have any questions, please contact us. We're more than happy to discuss your particular portfolio and/or perhaps just ease some concerns you may have at this time.
* American Funds. What Past Market Declines Can Teach Us.
** As of February 9, 2018