By David Guttery
Is volatility a new normal? Not hardly.
If your only source of information is coming from the mass media these days, then you’re not receiving dispassionate, actionable information with regard to the market and the economy. Indeed, many economic metrics reflect impressively positive trends including jobs creation, the unemployment rate, consumer spending, housing, industrial output, capacity utilization, and a myriad of others.
So if everything is rosy, then what’s up with the current volatility in the market? Very often, volatility is a precipitate of a catalyst, and very often that catalyst is fear. Fear over ISIS, Ebola, geopolitical issues surrounding Russia and the Ukraine, and the Federal Reserve have plagued the conscious thoughts of investors.
But is this anything “new.” Some of you may remember “Black Monday,” Oct. 19, 1987. I was a freshman at the University of Alabama. On that day, the S&P 500 Index lost 22.61 percent in one day. For comparison, over the 30 days between Sept. 15 and Oct. 14 in 2008, the S&P 500 Index lost 23.88 percent, amid such historic events as the failure of an investment bank, precedent-setting federal spending facilities, and culminating with the widest TED spread in history. (1)
The point being, we’ve always had volatility. Indeed, we haven’t seen a close second to the largest single-day percentage point loss in the market, which occurred 27 years ago. We had volatility then, we have it today and we’ll have it tomorrow.
The best advice is to be more fixated on the objective to be achieved than the daily fluctuation of the market. Remember also that bull markets are born on fear, they grow on skepticism, they mature on optimism and they burst on euphoria. These are states of mind, and such can’t be quantified within a spreadsheet. Ask yourself which of these states of mind best describe the market today.
Relative to the present strength of the forces that historically underpin the market, I believe that investors with long-term objectives could be rewarded by remaining focused on where they’re going, and not so much on where they are now. Turn off the television.
David R. Guttery, RFC, RFS, CAM, is Ameritas Investment Corp, and President of Keystone Financial Group, in Trussville. David has been in practice for 23 years, with a distinctive focus on the management of retirement assets for the production of durable income.