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The Market Zigs…and it Zags

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Most of blooom’s clients will admit that they don’t often look at the value of their 401k. But if you have been watching the stock market lately you would have seen that it has dropped a fair amount just in the past few weeks – which in turn will lead your 401k to zig and zag in value.

This is nothing new – it’s just been a while since you’ve seen this happen.

Over the past 3 years, basically since August of 2011 when the US Debt was down-graded, we haven’t seen much of a pullback (market decline). In fact, we have now gone 3+ years without even so much as a 10% pullback in the market. That is very unusual. Not nearly as unusual as our hometown team the Kansas City Royals making the playoffs for the first time in 29 years, but unusual nonetheless! Market pullbacks are not only normal….they are NECESSARY. If it was always a straight ride upward, then everyone would be a stock market investor and there would only be a fraction of the return premium afforded to investors.

As always, a little historical context and perspective never hurts. Since the year 1900, these are the statistics on how often the stock market declines:

5% market drops generally occur about 3 times per year
10% market drops generally occur about 1 time per year
20% market drops generally occur about once every 3-4 years

And how about this stat: since 1980 the stock market has had positive annual returns 26 out of the 34 years DESPITE the fact that the average intra-year decline has been 14%!

The fact of the matter is – markets will decline. It’s not IF it is WHEN and HOW MANY TIMES over the course of your lifetime. As we often say – the difference between a successful long-term investor and everyone else often comes down to how your react when the market sells off. Do you panic and run for the hills or do you stay the course (or even buy more) when the media tells you the world is ending?

While you won’t find us making rash changes, we will continue to monitor your accounts and take appropriate action to rebalance your accounts when necessary.

Our advice – try to pay as little attention to the short-term movements (up or down) in the market. After all, there are much more interesting things to pay attention to – LIKE THE ROYALS WINNING THE PENNANT!!

Published on October 15, 2014