As a shop teacher I taught students to plan your work and work your plan. This is also part of the advice I've given to you over the years if you are one of the people we serve at L2 AdvisorsTM. As you go through life you will encounter periods of volatility. I think most advisors focus on market or investment volatility but you know we include a holistic approach in our TruVectr FormulaTM process. Like the challenge of adapting to drawing income from your investments, instead of adding to them. Or the volatility of being in transition to an "empty nest" when the kids go to college. All these are the best time to rely on your plan.
The market volatility is probably on your mind in some way right now. Let's look at some historical context. Public policy is the cause of the current market downturn, mostly about uncertainty of the impact of the new Tariffs the US announced last week. Are we remembering that there were tariff related market drops under Presidents Bush Sr, Clinton, Obama and in the first Trump term? Tariffs are taxes on goods coming into a country. In these past examples, the tariffs imposed were very temporary but caused significant market upheavals. They were used to help fix an imbalance when one country we trade with was not acting fairly.
With regard to market downturns or pullbacks
Historically, market pullbacks (defined as declines of 5% or more) are a natural part of market cycles. Usually these pullbacks do not even register on our thoughts, for a few different reasons. I'll let Keagan explain this more in a future blog. The chart below shows in red all times the market dropped during a given year, compared in grey to the total return for that year. The point? A drop does not mean that the next 3, 6, 12 (etc) months will be bad or negative for markets.
- On average, the U.S. stock market experiences a pullback of at least 5% roughly every 12-18 months.
- Market corrections (10% or more) happen about once every 1-2 years.
- Bear markets (declines of 20% or more) occur, on average, once every 3-5 years.
Provided courtesy of JP Morgan Asset Management, JP Morgan Guide to the Markets research tool
As an L2 Advisors client, we hope you can rely on your plan. When markets seem worrisome, turn off the news. Visit www.L2-Advisors.com. Login to your financial plan and take this time to update it. Focusing on what you can control is the best way to get through hard times, whether its markets, life going on as normal or life transitions. So update your accounts, brush up your budget. Need help? Schedule an appointment, our calendar is available and open to you on our website, www.L2-Advisors.com.
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