No Pain, No Gain
This week, and in particular today, has reminded investors how emotionally punishing owning stocks can be. We preach maintaining a long-term mindset and embracing volatility in the short-term. But it is still sobering to see clients' accounts drop, even if it is just pixels on a computer screen. There were very few places to hide today: U.S. markets, international markets, and even all-mighty Apple lost percentage points of their value. Apple has lost about $160 billion in value over the last month!
The media have presented various story lines to explain what's going on: China devaluing its currency, the Fed raising rates, Greek drama, the dropping price of oil, etc. Each of these events is important and bears on the global economic outlook. In particular, China fears are worth paying attention to because of China's influence on the current and future global economy.
Still, we want to emphasize how necessary it is to maintain perspective on current events. There are always headlines that portend danger (remember Ukraine and Ebola last summer). The biggest risk for investors is that they overreact to bad news. By focusing on bad news, an investor risks exiting the market and not participating in the longer-term rewards (see below).
Pretty amazing to see how shallow-looking famous bear markets were when you zoom out to a long-term perspective.
The best (though understandably frustrating) explanation for the present volatility is that stock markets are doing what they often do in the short-term: fluctuate unpredictably. By nature, stocks go down, often, and sometimes by a lot. And by "a lot", this week pales in comparison to what can, has, and will happen.
As advisers, our job isn't to shield clients entirely from these downturns. Trying to do so would be disingenuous and very counter-productive. Our job is to coach you through rough patches and ensure that you remain long-term investors. Like many things in life, in investing the reward is proportionate to the pain.