Going through a divorce or being divorced can leave you feeling financially insecure for several reasons which include divorce attorney fees, two residences, and ending up with half the assets you shared with your now ex. Additionally, if you aren’t working presently and you’re trying to figure out how to fit a work schedule into your new life, that can be extremely stressful in and of itself. Top off those feelings of financial insecurity with the recent stock market plunge and that’s enough to send anyone stressing about money over the top!
That’s why I decided to post this article that was published in the Vestor Capital Investment & Wealth Management newsletter. After reading it, I personally felt able to exhale a little bit, as it explains why being jittery about the recent decline in the market isn’t necessary.
Market Update: Recent Market Volatility (from Vestor Capital Investment & Wealth Management newsletter)
After a long period of low market volatility dating back to 2011, equity markets have sold off over the past few weeks. While over the long-term equity markets react to corporate earnings growth, it is always difficult to explain short-term market moves despite what you may hear from so called market experts. There are a number of issues impacting equity markets, but we believe that markets are under pressure due largely to concerns that slowing economic growth in China will have negative implications for the world. We do not believe that China will have a major negative impact on growth in developed countries and view the recent market pullback as an opportunity to upgrade portfolio holdings.
Historic Market Volatility
A market correction is defined as a 10% pullback. On average, equity markets have a correction once per year. On Monday, August 24th, the S&P 500 closed down 6.8% for the year and 11% below its May high, meeting the definition of a correction. We have gone longer than average without a pullback, with the last 10% correction occurring in 2011. Historically, on average, markets recover losses of this magnitude in 3 to 6 months. It is important to remember that pullbacks happen as a natural market course, and should not cause long-term investors undue anxiety or concern.
Is This 2000 or 2007 Again?
Given the two unusually large drawdowns experienced over the past 15 years, investors are understandably jittery. It is important to remember that major market downturns are almost always associated with an economic recession. The stock market currently is not excessively valued like 2000, and the financial system is very strong. Housing values are healthy but are not excessive on average and home affordability is still very attractive. The U.S. economy is performing well and corporate balance sheets are solid. Leading economic indicators, which have historically been a good predictor of recessions, are healthy and point toward continued expansion.
Short-Term News vs. Long-Term Goals
The U.S. equity market over the long haul has rewarded investors who have been able to weather short-term volatility. Since 1928, 67% of years have recorded positive returns with average gains outpacing losses by a wide margin. Equities are best suited for investors with at least a five year time horizon, in order to weather the typical volatility that the equity market has historically exhibited.
What is our View of World Equity Markets?
U.S. equity markets have been strong since the market bottomed in 2009. However, valuations have only just returned to the long-term average, after being severely depressed in 2009. While interest rates are likely headed higher, no one expects them to rise to a level that would hinder economic growth.
Europe continues to heal and while we are less enthusiastic about their prospects vs. the U.S. we do see growth picking up over the coming years. We are less sanguine about emerging markets as we do believe that the slowdown in China is real and will continue. Until China stabilizes, we expect performance in this asset class to trail developed economies. However, long-term (5+ years) prospects remain good and we believe investors need to have exposure to this asset class. We do not expect the issues that emerging markets are facing to severely impact the developed economies of the U.S. and Europe.
When shopping it is always exciting when a sale occurs. You see an item that you really want on sale, you get excited and make the purchase. We feel the same way about stocks. Market corrections are normal and provide an opportunity to upgrade your portfolio into strong companies that you have been watching and waiting for a pullback. We plan to use recent market volatility to upgrade our portfolios and prepare for the eventual market recovery.
This newsletter contains material received from outside sources that we consider reliable as of the date herein. However, Vestor Capital makes no representation as to the completeness or accuracy of data received from outside sources, and no duty is hereby assumed to update or in any other way to make current and/or complete and/or accurate any of the said information. Securities are identified for illustrative purposes only. This should not be construed as a recommendation to purchase or sell any securities.
To learn more about Vestor Capital, contact Elaine Koby Moss, Vice Present and Senior Advisor for the firm: http://vestorcapital.com/elainemoss/