Do you sometimes get that queasy feeling in your stomach when markets go down? That is a very natural response. It is difficult for any of us not to flinch a bit when our account statement shows a loss. Fortunately, most of your quarterly statements in recent years have shown nice gains as your account has been growing.
That is the negative side of volatility. Markets tend to go up over time more than down. So the up periods are part of the volatility phenomenon as well. Volatility is defined as “the rate at which the price of a security increases or decreases for a given set of returns.”
Today a majority of economists surveyed believe the quarters ahead may be a little more challenging and may include more volatility, that is, more ups and downs. Most economists also believe that we are overdue for a recessionary period. No one can predict for sure. But looking at past cycles, it is normal for markets to take a breather and digest economic activity in bull markets when investments have gone up significantly.
So, are we in for a time when there is a correction in the market? A quick definition of how a correction is measured: it simply means that the market has dropped 10% or more from its high point. All we can say for sure is that today we’re one day closer to a correction than we were yesterday. Markets go in cycles and periods of correction are natural, and really helpful to re-calibrate the market when it has perhaps gone up too much, too quickly.
Here is the important point that we would like to stress and to remind you: when markets correct, remember that you are a long-term investor in your Servant Solutions retirement account. It helps to stop and think about just how well markets can treat us over longer periods of time. History is our friend. The longer our perspective, the better the results and smoother the ride.
Volatility can sometimes cause people to make irrational decisions that can do harm to long-term planning. Don’t fall into that pattern! When you need a quick reminder to stay the course, watch our video we created to address this topic. Take a look at our video below: Volatility vs. Risk (The video is hosted by Wayne Bollenbacher, our Director of Member Relations-Western Region)
In closing, remember these three admonitions that we’ve shared in the past:
1. Do not worry about a single loss year or volatile year in your account. You should focus on the average return over the long-term.
2. Remember that each dollar contributed in a tax deferred manner within your Servant Solutions Retirement Account would have likely only been worth between 70 to 80 cents after taxes. Tax deferral increases value! So even in a volatile year or a rare year that returns were negative, you still gained ground through tax savings.
3. And, if you are still contributing to your account, down markets are actually great times to be an investor! Why?? Because your contributions purchase more shares when share prices are down. Remember the old saying “buy low, sell high”? We help you to do that very thing.
Have questions? We’d love to help you. Feel free to call us for a conversation. It is our rich privilege to serve you each and every day.