In my last update I highlighted the lack of volatility in markets from a historically standpoint. Within normal calendar years corrections of -5% occur about 3 times on average (see chart below). With all of the haggling over the debt ceiling in Washington over the past few weeks, we’ve seen the first -5% pullback in nearly a full year. This prompted my first calls in quite a while from slightly skittish clients.
I see one of my most crucial roles as managing expectations by continuing to focus, and assist my clients to focus, on a broader and longer-term outlook. There is ALWAYS something going on in the world or some economic report or statistic to cause worry about negative pressures affecting markets. When we remember that pullbacks or corrections are completely normal and even inevitable, then there is really not much need for concern.
A key to sound investing is positioning portfolios to sustain and even take advantage of the opportunities created by stock price decreases. I almost always have positions across client accounts that can be paired back to realized gains, as well as positions I’d like to add when prices drop to more reasonable levels. This is not an attempt at “Market-Timing”, but a more systematic way of taking advantage of the normal ebbs and flows of stock prices. The only problem this year, which is not really a problem since it’s allowed nearly all portfolios to grow, is that we haven’t had the “normal” pullbacks and corrections. Here’s to a non-normal up-trending market . . . and portfolios positioned to navigate the speed bumps along the way!
Jack Schniepp is a CERTIFIED FINANCIAL PLANNER™ (CFP®, ChFC®), financial advisor and the owner of Cascade Financial Strategies. CFS is a registered investment advisor licensed in Oregon, California, Washington, Arizona and Idaho. They specialize in socially responsible investing which integrates environmental, social, and corporate governance (ESG) criteria into portfolio construction.