Weathering a Volatile Market

Weathering a Volatile Market

Investing during the past couple years has been like driving down a rutted dirt road in a car with worn shock absorbers: fraught with jarring ups and downs. At times like these, it can be helpful to look back and realize we have weathered difficult markets in the past.

A good starting point may be August 1979 when the headline on the cover of BusinessWeek declared equities (stocks) were dead. The accompanying article explained, “The Dow Jones industrial average set its all-time high of 1051 in 1973, but since then it has sunk nearly 20 percent to its current 830.” More recently, Bloomberg discussed the circumstances that led to the article:

“At the time the story was written, the stock market had sustained serious losses and the long-term health of the U.S. economy was a significant concern. The story has aroused some controversy over the years, as the stock market staged a strong comeback in the decades that followed its publication. But few, if any, market forecasters were willing to call such a recovery at the time, and the story provides a telling look at how inflation had ravaged the market landscape – and investor psychology – at the close of the 1970s.”

Since the 1970s, we’ve weathered a few other crises of note:

  • On Black Monday, October 19, 1987, the Dow lost 22.6 percent of its value in a single day. Major U.S. indices finished the day at about:

    • Dow: 1,739

    • Standard & Poor’s 500 Index (S&P 500): 225

    • NASDAQ: 360

  • When the Dotcom bubble burst, the value of the NASDAQ Composite Index (which is sometimes considered a proxy for technology companies) bottomed on October 9, 2002. The major indices finished the day at:

    • Dow: 7,286

    • S&P 500: 777

    • NASDAQ: 1,114

  • On June 30, 2009, the month the Great Recession ended, the major indices closed at about:

    • Dow: 8,447

    • S&P 500: 919

    • NASDAQ: 1,835

  • Last week, after the worst start to a year on record, the major indices finished the week at about:

    • Dow: 15,988

    • S&P 500: 1,880

    • NASDAQ: 4,488

It’s an uncomfortable fact, but stock markets can be volatile. They move up and down, although historically, market values have tended to increase over time. That’s one reason it’s important to build and maintain a well-allocated, diversified portfolio grounded in your risk tolerance and financial goals. Diversification does not assure a profit or protect against losses, but it may help reduce the impact of market fluctuations on the value of your portfolio over time.

Think About It

“The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward.”

--Amelia Earhart, Aviation pioneer

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