Charting a Prudent Path Through Market Volatility

Charting a Prudent Path Through Market Volatility

We’ve had a great bull market, but it hasn’t been a smooth ride

It’s been such a great run, it’s easy to forget the significant bumps along the way. In fact, since the 2008-2009 recession, the total return for the S&P 500 was 336% from it’s low point on March 16, 2009 to November 30, 2018.

But it hasn’t always been smooth - there have been 5 significant market declines worth noting during this bull market:

  • Flash Crash of 2010: The Dow Jones declined 9% within minutes, to recover most of their losses by end of day.
  • Black Monday 2011: The S&P 500’s worst day since 2008, it declined by 6.7%
  • Summer Crash of 2015: The broad stock market declined 10%
  • 2016 Selloff: The average stock was down 25% in February, with the S&P 500 down 14% for the year
  • February 2018: The Dow and S&P 500 both fell 10%

Investors that stayed the course have historically been rewarded

A bumpy ride is not new or abnormal. In fact, in 21 of the past 38 years, the S&P 500 had an intra-year drop of 10 percent or more. Investors that stayed the course and did not move to cash in each of these downturns were rewarded handsomely as the market ultimately rebounded and rose to new highs. Those that panicked and moved to cash, frequently locked in their losses.

Our recommendation...

We believe the single best strategy for most people is to stay invested in a risk-appropriate, diversified portfolio. One that balances growth from stocks with the relative safety of investment grade bonds. One of the easiest ways to achieve a balanced mix for your age is the Vanguard Target Date Funds. These funds will automatically rebalance your account for you, given your age and time to retirement. Best of all, as you get close to retirement, they will gradually reduce your risk for you.