Stock Market Volatility: An Unpleasant but Normal Part of Investing

Stock Market Volatility: An Unpleasant but Normal Part of Investing

As published in the Fall 2015 Edition of NJ Lifestyle

Arguably the most difficult aspect about investing in the stock market is the volatility that is the trade-off for higher long term returns. During the past 40 years, the S&P 500 (widely regarded as the standard index for measuring Large Cap U.S. stock market performance and includes the 500 largest U.S. Corporations by market capitalization) realized an average annual total return of 11.4%, according to S&P Dow Jones index data. However, to have benefited from such performance, an investor would have had to stay the course through periods of significant volatility. Market declines of 10% or greater (typically defined as Corrections) have happened more than 15 times over that forty year period, including four bear markets (defined as market declines of 20% or more). Corrections happen on average once out of every 18 months. Until the recent decline in August, the markets had been more than four years since our last 10% pullback. Corrections are normal and are to be expected when investing in equities. That doesn’t, however, mean they are not unpleasant and unnerving to most investors.

Read more