- Michael L. Green, EverGreen Capital Management
Market Volatility, Reasons to Be Calm
We all can still see the 2008-9 crash in our rear view mirror. In times like the last two months, people get jittery and wonder if we're headed for another one. The answer is very unlikely for a number of reasons. When the market takes big nose dives, it's big news for all the media outlets. So whatever happens gets exaggerated because it has headline value. But these market gyrations in the short term don't always reflect what is going on in our and the world economies.
Compared to 2008-9 we are in much better shape. Banks, which back then engaged in highly questionable lending practices can't and don't do that anymore. Tighter regulations require that they have much stronger balance sheets than many had then. Home owners are on much more stable ground financially and far less likely to have trouble paying their mortgage. So another real estate landslide is pretty much out of the realm of possibility.
Keep in mind that in spite of the big gyrations the market has been exhibiting of late, it is up since the spring of 2009 by nearly 190%. Those who did not sell out of the market in 2008-9 are likely in better shape now than they were, even immediately before the crash. And that's even if they didn't put any more money into their portfolios. Those that did add to their investments are much better off financially, by a long shot!
Looking at the U S economy, it's in pretty good shape. By some economic reports, we aren't growing as fast as we should be. We've added nearly 12 million jobs since the recession; well over a million in 2015. Remember from 2008 to 2010 we were losing almost a million jobs a month. Historically low interest rates have reinvigorated the housing market. That positively impacts many other sectors of our economy; construction, and furniture and appliance purchases to name a couple. New car sales are on pace to set a record.
So what does this mean? The markets have nearly double from the historic collapse, so a pull back of less than 10% is normal. The overall trend is still positive. You should take this opportunity to look at rebalancing your investments. If you're using stocks, there may be some high quality companies that deserve a look because they've come down from their high point. If you're a fund investor, consider high quality ETFs (Exchange Traded Funds) of those sectors that have likewise pulled back. Historically, what goes down comes back up and vice versa. But make sure your decision fits with a well thought out plan. Don't impulse shop and don't speculate unless you can afford to lose what you risk.