What’s not important now? What is?

Posted by on Aug 27, 2019 in Faith in the Future, Investment Principles, LifeBoat Drills, Serious Money Talks, Stock Market | 0 comments

What’s Not Important Now

Market volatility has once again made headline news. The media is always eager to report when the market “plunges” 400 points or more, but barely mentions when the market “surges” the same 400 points. So it may come as a surprise to know that the overall net effect of these ups and downs has been relatively small. It may also some as a surprise to learn that the volatility has been happening for about 18 months, beginning in January 2018.

Here is a quick review:

  • January 2018: The S&P 500 index peaked 2872 after a beautiful, smooth two-year rise from 1829, for a 57% increase.
  • February 2018: In just 14 days the index fell 9% to 2581.
  • September 2018: The index spent the next 9 months gradually and slowly climbing to 2930, a 14% increase over the February low and about 2% above the January peak.
  • December 2018: The index spent the three months between September and December in a downward spiral with big daily swings. By Christmas Eve, the index had fallen 18% to 2416. And the daily volatility was just getting going.
  • April 2019: As quickly as the index fell in the autumn of 2018 it rallied for the first four months of 2019, gaining 25% to 2945, just a nudge above it’s September peak
  • May 2019: May was a down month, decreasing 7% to 2744.
  • June 2019 to mid-July 2019: June was an up month, increasing 10% to 3025.
  • Mid-July to mid-August 2019: The index decreased again, now down 6% to 2840.

If you have followed along this far you will notice that the S&P 500 index, which peaked in January 2018 at 2872 is now at 2840. After all the ups and downs, and after all of the media histrionics about volatility, the index is down 32 points, or 1.12%.

Volatility is scary to the short-term investor who is trying to time when to get in the market and when to get out. For the long-term investor (i.e., you) volatility may rightly cause some anxiety but should not be scary. Markets don’t go down forever. Support levels for a falling market are always found sooner or later. As I’ve written and said many times: market declines are temporary but market advances are permanent.

What Is Important Now?

So, if market volatility is simply part of the investing process and isn’t so important, what is important to know and understand? In a nutshell, what is important to know and understand is that equities (i.e., the stock market), over the long term, are an extraordinarily effective way of building and protecting your purchasing power (i.e, beating inflationary costs of living). Check out these long-term numbers:

  • From 1960 (about 60 years):
    • Consumer Price Index up 9x (i.e., what cost $1.00 in 1960 costs about $9.00 today)
    • S&P 500 Index up 50x
  • From 1980 (about 40 years):
    • Consumer Price Index up 3x
    • S&P 500 Index up 22x
  • From 2000 (about 20 years):
    • Consumer Price Index up 1.5x
    • S&P 500 Index up 2x

Since volatility has been around the past 20 years, 40 years, and 60 years, and since the stock market has outpaced inflation the past 20 years, 40 years, and 60 years, I have concluded that volatility not only isn’t so important but that volatility is somehow part and parcel of achieving the long-term rates of return we have witnessed the past 20 years, 40 years, and 60 years.


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