Update from Nathan Woods, head of The Trust Company’s Investment Committee, about the Markets’ recent activities and how we’re keeping your best investment interests in mind.
- What is happening in the market?
- Why is the market volatile?
- What should you do about your investments?
Nathan Woods, Relationship Manager at The Trust Company and head of our investment committee. I wanted to touch base, because no doubt if you’ve listened to the news, watched the news, read the news, talked to someone about the news you’ve probably heard about quote unquote worst ever start to the year when it comes to the stock market; this year 2016. But what you probably haven’t heard is why it started so poorly and what’s happened since then.
The why is explained in a number of ways, but let me answer that through describing the three main questions I hear and others here at The Trust Company are answering for our clients. Why the volatility? Is this normal? And what do I do about it?
First, why the volatility? Volatility started late last year in December as stocks began falling both in the US and overseas and those falling stock prices continued into 2016 until about mid-February. For many reasons the prices were falling; because of the uncertainty in China and Asian markets, Middle Eastern crises that we hear of. Anywhere from political instability in the US and overall investors just perceived that stock prices were too high in various assets. So they fell through, like I said, about mid-February. Since then stocks have more than made up their losses and it has been a great few weeks since then.
The second question, is this normal? As many have discussed previously including The Trust Company, stock market corrections are normal and they are necessary. To explain it a correction is when the stock market declines more than 10% from its high point. We’ve seen this over the past six months for sure. And in fact over the last 100 years or so we have experienced a combination of both “down markets,” we know them well, and “up markets,” we remember some of those as well. For the most part the stock market is in a correctionary phase, so it’s down 10% or more about a third of the time of those last 100 years. Now we remember that well, but keep in mind the other two-thirds of the time the stock market is in what we call a bull market. Prices are rising. So that’s the important part. Investors work to minimize their exposure to those down markets, but try to take advantage of the up markets as much as possible.
Lastly, what do you do about these volatile times? Going forward it is more important than ever to assess your investment risk that you take on in all your accounts and all your investments. It’s difficult. Everyone enjoys stocks when stock prices are going up, but everyone hates stocks when prices are falling. Be sure to invest over the long term, over business cycles, and with the mind-set toward, not the return you want to generate, I love stock growth as much as the next person, but I can’t predict that. I’d have to manage toward the risk with which I am comfortable.
In honor of baseball season being underway think of investing this way; the same way a baseball manager builds a nine person line-up for each game. Each player serves a purpose. Which is why all nine players don’t stand on the pitcher’s mound and investing is the same way. I may hold nine assets, or any number, and one asset may perform better or worse as the stock market ebbs and flows. What’s important is to make sure that each type of asset held in your account works in conjunction with the other so that you benefit not only when markets are going up, but you’re sheltered as much as possible when markets decline.