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Should You Worry About

MARKET VOLATILITY?

By Christopher N. Congema, CFP ® the lack of a consistent strategy and discipline. Dalbar, an
Principal, Investment Advisor independent financial services research organization has
been providing for many years an annual report on individual
investor results versus the market as a whole, known as
How often have we heard that markets are volatile, and the Quantitative Analysis of Investor Behavior. In their 2015
you simply need to stay invested rather than panic? To the report which looked back 20 years, they found the average
average investor, the answer is likely countless times. So equity mutual fund investor had a 20 year return of 4.67%
how reliable are such cliché like statements about investing? vs 8.19% for the S&P 500 Index. The average fixed income
The answer is; extremely reliable, so long as you don’t mutual fund investor produced annualized returns of 0.51%,
attempt to out think financial markets.
while the Barclays Aggregate Bond Index posted an average
So how risky is the stock market? Looking at the S&P 500 return of 5.34%. Most of this lag in performance is driven by
index (The 500 largest public US companies), we actually emotional responses to market conditions in which investors
see that market volatility is quite the norm. A recent JP attempt to time financial markets. This often leads to selling
Morgan analysis showed that from 1980-2017 the S&P 500 into market declines, and buying into market strength.
posted positive price returns in 29 out of 38 years. That is What all of the data tells us is that markets are highly
roughly 3 out of every 4 years. When dividend yields from unpredictable over the short term and very predictable
the underlying companies are included, three of the nine over the longer term. A well-constructed investment plan
negative years turn positive. Across that time frame, there will gain exposure to various different asset classes to help
was an average intra-year decline of -13.8% from the peak to minimize the inherent short term volatility. However,
of the market to its worst point each year. As an example, no investment plan can be expected to work without the
the S&P 500 Index closed up approximately 26% in 1980, commitment to stay invested across different market
yet at its worst point in the year had fallen by about -17%. conditions. In order to accept that, investors must first accept
Seeing these types of swings in pricing is quite normal and that market volatility is quite normal. It should be regarded
expected.
as an opportunity rather than a cause for concern.
What is NOT predictable is specifically when such swings If market volatility has you concerned, there are some very
will take place, in what direction, and how long they will last. good software programs that can help you evaluate your risk
Financial markets are highly unpredictable in the short term. tolerance and how you might react given different market
There are thousands of variables that impact the value of a conditions. If you would like to determine your “Risk Score”
specific company at any given point in time. Some of them please visit www.landmarkwealthmgmt.com, go to “Risk
are specific to that company, and others can be related to analysis” and then “Riskalyze” which is based upon Nobel
larger indirect economic or geopolitical concerns. Attempting Prize winning research to help pinpoint an investor’s risk
to predict short term prices movements in a specific number. You may call 631-923-2485 for help as well.
company, or the stock market as a whole is most often an
exercise in futility. In the end, what makes a company, or Landmark Wealth Management, LLC
group of companies more valuable over the long run is profit 900 Walt Whitman Road, Suite 208
growth. Melville, NY 11747
631-923-2486 Phone • 631-923-2488 Fax
What we find fairly consistently in the financial planning www.landmarkwealthmgmt.com
field is that investors behave emotionally far too often. What chris@landmarkwealthmgmt.com
drives down returns across portfolios over the long run is

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