This past February, the Dow experienced the largest point downturn in history of 1,178 points, or roughly 4.62 percent. As of the writing of this article, it remains the largest one-day downturn. The reality is market sell-offs can be scary as we go through them, but are they all that uncommon? Only once in the last eighty-nine years has the S&P 500 not dropped at least 4.4 percent from an interim peak, and in 2016 there were four occurrences. It should be noted that the S&P 500 rose 9.5 percent in 2016. For three-quarters of the time the intra-year corrections were ten percent or more, with the average being seventeen percent.
Since 1926, the S&P 500 has had a downturn of five percent or more in 109 months. On average, that’s a downturn of five percent in one month, every year! The S&P 500 has experienced downturns of ten percent or more in twenty-five months since 1926.
So, why are we, as investors, willing to take this risk? It is simple – the rewards of the stock market. If we invested $1 across Large, Large Value, Small and Small Value companies in 1970, that dollar would be worth $336 today if we matched market returns. If we put that same dollar in safe US Treasury bills, it would be worth $9.29. That’s a big difference.
Downturns are to be expected, and they can be big. However, volatility is your friend. If it wasn’t for the risk, there would be no return. But downturns cannot be predicted, no matter how much the media tries to do so. Keep in mind, if you decide to sell your portfolio, there is always a buyer on the other side of that transaction. Set your plan in motion and stick to it. Don’t deviate because market fluctuations take place. They are common, and necessary for the rewards of market returns.
If you would like to learn more, feel free to give our Gallatin office a call at 615.461.8653, or check us out at paulwinkler.com. We can set up a free initial consultation to determine if our office can help you with your current situation. I’ll keep the coffee ready for you!
Until next month,
Jonathan Walker, CFP®, RICP®
*Advisory services offered through Paul Winkler, Inc. (“PWI”), a Registered Investment Advisor. PWI does not provide tax or legal advice; please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase or sale of any securities.