The October PastCast

Riding out the storms.

As is the case in nearly all election years, this October was a stormy one for stocks. U.S. stocks were down about 7% for the month and at one point even crossed the dreaded 10% down threshold that officially marks what is often referred to as a “correction.” And remember that in September we had just seen brand new all-time highs for major U.S. stock indexes.

 

Corrections are normal.

We remind clients often that corrections are normal and should be expected fairly often between now and your retirement. In fact, historically they tend to happen on average at least once per year. BUT, they have also always been temporary, 100% of the time! You read that correctly. There is not a single example in history of a stock market decline that was not followed by a recovery. This is somewhat comforting evidence that can help put things in perspective a bit. It’s also the reason we continue to hammer home the importance of staying calm during these events, as annoying as that may seem. It can be frustrating for many to hear their advisor tell them the best thing they can do right now is absolutely nothing, but that simple advice is the time-tested approach that repeatedly proves itself the most beneficial over and over again every time we go through these turbulent and stormy periods.

 

This is not the first time…

Many forget that this isn’t the first time just this year that we’ve seen stormy weather in the markets. February and March saw some big dips as well, but the reason we forget is that those dips were quickly followed by full recoveries that sent the market to new all-time high after new all-time high. Remember that long-term growth in the stock market and your 401(k) does not happen in a straight line and despite many positive economic headlines, good news for the overall economy can often blur the reality of how the stock market is performing. Just look at a chart of the S&P 500 so far this year:

 

Chart source: https://money.cnn.com/data/markets/sandp/

 

The bottom line:

October was a dreary, stormy mess of a month in the stock market with a major election on the horizon (check out our blog!), but we have no reason to believe the sun won’t eventually come back out. As always, stay focused on the long-term and don’t let these moments get the best of your emotions as an investor. For better or worse, the decisions you make as an investor during months like October can provide valuable, if not very costly lessons to us all. Per usual, the great Warren Buffett often says it best:

 

“The stock market is a device for transferring money from the impatient to the patient”

 

Be the patient investor.

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