There is No Modern Day Nostradamus

When volatility comes back into the market, many investors feel the urge to make changes.
 
In other words: don’t just sit there – do something!
 

 
Source: Morningstar Direct 2014. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.

How Are Investments Like a Bar of Soap?

The return of volatility has prompted many investors to make knee-jerk reactions. The noise in the media can be confusing to investors, and here’s a great opportunity to provide your clients with understanding about the markets — invite them to our Quarter-in-Review webinar.
 
This quarter we look at the difficulties of trying to beat the market…and show how investments are like a bar of soap.
 
Join me and Sheldon McFarland next Tuesday, October 28, at either 10 am or 5 pm PT. We’ve included a sample client invitation below.
 
If you have access to MyAdvisorCenter you can preview the presentation slides under Communications->Clients->Quarter-in-Review. You can also view a PDF of the presentation on our website under Commentary & Publications.

 
Register for 10 am
 
Register for 5 pm
 
Click here for sample client invite
 
IRN R 14-450

The Amazing and True Adventures of the Stock Market

Vanishing Volatility

Gains of nearly 30% on a broad index like the S&P 500 — after four years of above average growth — has given investors many reasons to rejoice. And it’s not just the absolute return that investors have relished; it’s the smooth fashion in which we’ve reached that number.
 
In 2013 we saw only 17 days where the index fell by over 1%, and no days when it fell by over 2.5%. Looking at the last 20 years we would expect to see 35 days where the index fell by over 1% in a given year, meaning 2013 had only half the number of significantly down days that we would expect.
 
And the volatility has disappeared not only on a daily basis, but on a cumulative basis as well. The chart below shows the annual drawdowns of the S&P 500 since 1972. The last two years have had very small drawdowns of around 6%; this is really nothing worse than a bad week or two on the index. With volatility so low for a few years, it’s easy to extrapolate this tranquility into the future, assuming the market will continue to be a smooth ride.