Commentary from our firm that offers insight into timely events and news that shapes our financial world.
Key Tips Through Tough Markets
1. Volatility is normal
The reason we expect higher long-term returns on stocks than on cash and bonds is because they have greater volatility. We have to accept volatility in times like this to earn the expected higher long-term returns. Park Avenue Securities takes a strategic, long-term view on asset allocation and your portfolio is invested based on your unique financial and personal circumstances.
2. Market timing is counterproductive
If one could achieve success with market timing consistently, the rewards would be great. However, investors typically end up with sub-par performance because of the difficulty of getting the timing right.The higher returns associated with investing in stocks is dependent on being disciplined through both good and bad times.
The S&P average annual return between 1994 and 2013 was 9.2 percent, and the average investor had an average annual return of the 2.5 percent, according to data compiled by Morningstar.
3. Diversification is key
An important lesson is any market drop is that diversification works over the long-term. While this may not be the case on a day-to-day basis, a mix of different types of assets provides a smoother and more stable ride for your portfolio.
4. Panic won’t help
While stocks are certainly not cheap, they aren’t overpriced given today’s levels of interest rates and inflation. U.S. stocks are trading at 24.9 times the average of their long-term, inflation-adjusted earnings, according to data from Yale University economist Robert Shiller– down from 27 in February 2015. Looking at bull and bear markets over the past 30 years, they’ve traded at an average of 23.8 times adjusted earnings.
5. History repeats itself
On average, the market is relatively flat the next week, up 1.65 percent over the next four weeks, and up close to 5 percent over the next 12 weeks. Also note that the index moves higher the following week 60 percent of the time.
Confidence and Trust are the most important factors in decision making. That is why working with a Certified Financial Planner™ professional at Navigation Wealth Management is crucial. A CFP® has the knowledge and experience to guide you through the various courses in the sea of financial services with your destination in mind.