Stock Market Jitters

Our latest market commentary talked about the relative tranquility of the stock market in recent years and encouraged everyone to psychologically prepare for some choppy waters. Well, it seems we’ve already encountered some of that turbulence. A string of bad days has pushed the S&P 500 to a 10% decline, often referred to as a “correction.”

The market discussion was not meant to be a forecast, but rather a gentle reminder of how the stock market works. If stocks moved in a straight line upward it would certainly be a whole lot easier, but the higher long-term returns they offer are a direct result of accepting their inherent volatility. It’s just an unavoidable truth, and there simply isn’t a way to own stocks “only on the up days.”

A pullback of 10% or more has occurred in 5 of the past 10 years – a decade during which the S&P 500 posted an average return of more than 16.5% annually. Downturns aren’t fun and we don’t have to like them, but we do have to accept them. It’s the cost of doing business when it comes to owning “growth” assets like stocks.

Of course, downturns are when portfolio diversification shines. Bonds tend to hold their value or increase when stocks experience their periodic rough patches. Bonds can seem stodgy, boring and uninspiring when stocks are soaring, but they can also be a dear friend when times are tough. Diversification eases some of the pain and it definitely works well over time.

Hang in there!

Life Planning Partners, Inc.