Volatility in the stock market is back. You could hang your hat on a number of reasons why: the slowing Chinese economy, interest rates potentially rising in the United States, Volkswagen lying about its emissions testing, or an “overvalued” stock market. There will always—I repeat, always—be risk in investing in the stock market.
Since 1970, the S&P 500 has returned about 10% a year on an annualized basis. This doesn’t happen every day—if it did, everyone would put their money in the S&P 500 index fund and go to the beach. Some years the market is up 20% or 7%, and some years it’s down 10% or even worse, 30%. That is the nature of the stock market. It goes up, and it goes down. Fortunately, it has gone up in more years than it has gone down. We have had some very bad markets over the last 15 years; there was the tech bubble in 2000, the financial crisis in 2008, the “flash crash” in 2010, and a war of words that almost shut down the U.S. government in 2013.
Despite all of these events, the Russell 1000 index (the index of the 1000 largest market cap stocks in the United States) as of September 23, 2015, is up 12.62% over the past 3 years, 14.07% over the last 5 years, and 7.22% over the last 10 years.*
There is no guarantee that these results will continue in the future, but if you believe in capitalism and that companies will grow their earnings and develop new products and that there is the next Google, Apple, Facebook, GE, or even Chipotle out there, stocks may offer you, over time, some of the best investment returns to help grow your money.
Remember, we invest to fund certain goals—retirement, college, a wedding, or a trip to a place we have dreamed of visiting. Keep all of this in perspective and, as I like to say all of the time, control what you can control. You cannot control the stock market. You can control how much you allocate to stocks, how much you need to save, how to cut down your expenses, and even how often you look at your account balances.
This volatility will pass. It may be next month or next year or in two years, but it will pass. Keep your eye and emotions on your goals and, most importantly, on the things that matter most in your life.
I am attaching an article on long-term investing that was written by David Goetsch for Dimensional Funds, a fund company that I use in many of the portfolios we manage.
I hope you enjoy the article. And remember: control what you can control, and enjoy this beautiful fall weekend.
*Source: Russell Investments 2015. Return and value data utilized in this calculation tool comes from sources believed to be reliable but is neither guaranteed nor warranted and is subject to revision without notice. This tool is being provided for analysis purpose only and should not be used to make investment decisions. Tool and data is to be used at your own risk