For the stock market in 2018 – like many things in life – the destination was not as interesting as the journey.
Last year showed a stark contrast from 2017, where the S&P 500 rose steadily, had little volatility, and posted a gain of more than 21%.* 2018 started strong, found volatility, reached Bear Market status late, and ultimately lost 4.4%* over the course of the year.
“Volatility” and “Bear Market” are buzz words that can strike fear in the hearts of even the most seasoned investors. So let’s unpack these concepts to understand them better and see how we can navigate them.
How Volatile Was 2018?
Here’s a good measure of volatility. In 2018, the S&P 500 experienced 20 trading days where the single day gain or loss exceeded 2% (15 days were losses, 5 days were gains*).
Since 1950*, the market has averaged 11 such days per year, and we have not exceeded that average since 2011.
For Some Context: A History of 2% Days
Here are the number of “2% Days” for the 5 years prior to 2011:
And here are the figures from the 6 years after that. Notice a difference?
The takeaway: while the resurgence of volatility is a recent development, this level of volatility is neither unprecedented nor unfamiliar.
Interestingly, volatility happens in Bull Markets and Bear Markets alike
The only difference is which direction the trend moves. When it’s trending upward, we all hail the “Bull Market.” When it’s declining, we wail for the “Bear Market.”
Generally speaking, a market earns “Bull Market” status once stock prices have risen 20% over their previous low- and “Bear Market” status when they’ve fallen 20% from the previous high.
There Isn’t One Without The Other
Bull Markets give way to Bear Markets, and vice-versa. Case in point: Since 1960 there have been 18 Bear Markets and 18 Bull Markets, and they rotate about every 3 years.**
The average Bear Market lasts 11 months, during which the market declines by 26.3%. The average Bull Market lasts for 28 months and typically sees a market gain of 76.1%.
Simply put, the good has the potential to outweigh the bad.
Here are some helpful considerations for navigating these markets in your own portfolio:
- Resist market-timing strategies. It is impossible to know what the stock market will do on a day-to-day basis. To understand how much the market fluctuates each day, consider this: according to Standard and Poor’s, in an average year from September 3, 1929 through February 11, 2016, an investor who stays fully invested throughout the year will earn a return of 7.20%. If you remove just the best 10 best days of the market in that year, their total return shrinks to less than half: 3.54%.
- Dollar-cost averaging is your friend. For people currently working and contributing to their investment and retirement accounts, committing to a monthly investment amount can help you navigate a volatile market. Investing a consistent amount of money at regular intervals may increase your chances of buying more shares when prices are low, netting you a lower average cost per share.
- Review your allocation. Fluctuating market values can cause portfolios to experience “style drift,” or a departure from the portfolio’s objective. What may have started as a 50/50 portfolio of stocks and bonds can shift over time if not rebalanced regularly. Make sure your portfolio hasn’t drifted, and make sure your allocation is still suitable for your current desired level of risk.
- Maintain perspective. We live in a 24-hour news cycle with more access to information and opinions than ever before. Negative headlines often outnumber the positive ones. Maintain a long-term perspective, critically examine how different allocations have performed over time, and try to align your portfolio with an allocation that meets your comfort for risk and reward.
Todd Micciche works to help members grow wealth carefully.
To speak with Todd or another experienced Unitus Financial Advisor, call Shelly Geweke, Financial Advisor Coordinator, at 503.423.8519.
*Source: Student of the Markets, BlackRock, Retrieved January 2019
**Source: Battle Between Bulls and Bear, Franklin Templeton, Published March 2018
The information and statistics presented have been obtained or derived from sources believed to be reliable. All opinions expressed herein are those of the author.
Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost; and current performance may be lower or higher than the performance data quoted.
Advisors with Unitus Financial Advisors are registered representatives of CUNA Brokerage Services, Inc. Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No financial institution guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America. FR-2376665.1-0119-0221
About the Author: Todd Micciche, a financial advisor like his father before him, is driven by the positive change he has seen in the lives of his clients. He earned his MBA at Portland State University and has built 12 years of experience advising clients to help them reach their specific financial goals. He holds various FINRA securities registrations and is currently studying to attain CFP® certification.