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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Living with Volatility

Hi Guys,

Living with stock market volatility can be a frightening experience, even for seasoned investors. The reality is that volatility is firmly embedded in the historical equity market record.

Although the equity market (as represented by the S&P 500 Index) delivers positive returns roughly 70% of the time, the road is filled with annual short term potholes.

The S&P 500 experiences a momentary 10% downfall about once a year; it experiences a heart stopping 20% in-year downturn about once every eight years. But it more often than not quickly recovers. Here is a Link from the American fund family website that illustrates this record very nicely with an especially understandable graph:

https://www.americanfunds.com/individual/insights/2015-insights/welcome-back-volatility.html

Even during the best of positive annual return years, some substantial short term downward spiral has been registered. Interim down markets are the rule and not the exception. The lesson is (with a nod to Jack Bogle): Stay the Course.

Both the USA and its equity markets are resilient forces. That’s particularly worth remembering on this Memorial Day.

If you can not tolerate these rather common upsetting events, perhaps you should not be in the equity marketplace.

I hazily recall that this chart as been referenced on an earlier MFO post. If so, I apologize to most MFO members, but for the worrywarts among us, it does bear repeating.

Best Regards.

Comments

  • This representation may cover the investor spectrum, volatility or not:

  • MJG
    edited May 2016
    Hi Catch,

    Yes indeed. I'm always shocked by how many folks that I encounter have so little investment knowledge and foolishly pass on equities because of undefined fear. Volatility exacerbates this fear factor.

    A very appropriate reference. Thanks.

    You face a difficult task everyday.

    Best Wishes.

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