Volatility Is Back: Here’s What You Should Remember

It’s back! Volatility has returned to the stock market.

Research shows that investors are about 2 ½ times more sensitive to losses than gains. I think that number is pretty accurate, with some investors more or less sensitive.

The media is no friend when it comes to stock market volatility. Take early April:

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  • Monday, April 2, the global stock market was down about 2%. The headlines were blaring the news.
  • Tuesday, April 3, the global stock market was up about 1.25%, recovering about half of the previous day’s loss. Not a peep from the media, no more of a mention than the weather report.

While the media is at the forefront now with political reporting, it has a long record of doing more harm than good when it comes to investing news. Don’t pay attention!

All you need to know about the stock market can be written on a postcard. With credit to Anthony Isola at Ritholz Wealth Management and reported on MarketWatch:

  • Daily dips of 2% or more occur about five times a year.
  • Every five years or so, markets decline about 30%-plus.
  • Markets rise almost three out of four years.
  • Over long periods, markets significantly beat inflation.
  • Selling low and buying high never works.
  • Turn off the TV and don’t check your account.
  • Never make important decisions based on emotion.
  • These are the facts. Everything else is a scare tactic.

I’ll add the following corporate mantra: “If you measure your portfolio from its peak, you will always be disappointed.” Rather, compare your current portfolio value with its value five years ago, 10 years ago, or even 20 years ago. I’m reminded of Ronald Reagan’s presidential campaign question: “Are you better off than you were four years ago?” There may be rare periods when you were better off five years ago, but those are usually exceptions.

Turning to a personal financial planning note, car insurance rarely gets our attention other than the insurance company ads we see everywhere. We recommend that you check your coverage to be sure you have “uninsured, underinsured motorist” coverage, including in your umbrella liability coverage. This coverage protects you in case you get hit by an uninsured or underinsured motorist. This is an increasing risk in today’s society, and not all insurance companies offer coverage or routinely include it in your policy.

As always, please contact us with any questions, news, or comments.