The headlines and talking heads painted a very bleak picture last week as the market went through its first significant bout of volatility in two years. But at Keen on Retirement I’m not trying to scare you into clicking on another link or sticking around through the next commercial break. We want to give folks our honest perspective on what’s really going on in the markets and the state of the economy’s fundamentals.
So, on today’s show, we take a clear-eyed, long-term look at the recent market fluctuations and key economic indicators, explain some of the reasons for Wall Street’s jitters, and discuss the potential effects on your portfolio.
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4 Key Insights on the Market Volatility
1. Back to normal.
Until recently, the market had gone nearly 450 days without a 3% decline, breaking the previous record of 370 days. It’s been a long time since the market experienced much volatility.
Despite the recent volatility, it’s been business as usual at Keen Wealth. We weren’t really surprised by the movement – in fact, if you go back to Matt Wilson’s 2018 Outlook Presentation, we actually cautioned folks that after 2016-2017’s uninterrupted growth, the market most likely would experience normal volatility this year. So far, that’s exactly what’s happened. In fact, one of our research providers told us that in the history of the S&P 500 there have been 144 one-day drops of 4%. That averages out to nearly two per year.
Significant one-day drops in the market are more common than people realize. We just haven’t had one in a while.
2. Don’t take headlines at face value.
“The biggest one-day point drop in history!” screamed the media last week.
Well, of course it was – the Dow has never been higher either!
As we’ve mentioned time and time again on our show and blogs, the market continues to trend up in the long run. Simply put, as the market gets bigger, our one-day drops will get bigger. And this means that point drops become a less significant measurement of how the market and the economy are really performing.
3. Our economic fundamentals remain strong.
The last jobs report showed a gain of 200,000 new jobs in January.
Wages? Growing at their fastest pace since 2009.
The Atlanta Fed’s estimated annualized growth rate for the next quarter is 5.4%, which is the fastest pace since 2003.
Almost all the key measurements we study at Keen Wealth to project where the market could be headed continue to trend in a positive direction.
So, why the fuss on Wall Street?
Short-term interest rates are still lower than they were when Lehman Brothers collapsed in 2008. Couple that with rising wages and lingering uncertainty about how the new tax bill will affect the economy, and some investors worry that the Federal Reserve might have to raise interest rates faster than expected to keep inflation in check.
However, raising interest rates above record lows would just return those rates to levels that are closer to what’s historically normal. So, despite these concerns and the recent correction, our analytics continue to predict a strong market for 2018.
4. Put. Your. Phone. Down.
When I started out as a financial advisor 26 years ago, clients received quarterly statements. Now it’s possible to monitor your portfolio’s performance minute-by-minute on smartphone apps and other web-based services.
And I really believe that’s just not a healthy way to participate in your financial planning, especially not in the long-term.
During the recent volatility, I’m sure many of those nervous investors clicking and swiping themselves into a panic were millennials who were new to the workforce and the market. Many had never even seen a market correction before.
Most of the folks we work with at Keen Wealth know better than to check their balances daily. People who have built their wealth long-term, who have had to save money and live within their means, and who have experienced these market cycles before have a much better perspective on how the market works. In fact, most have learned to look at volatile times as opportunities to rebalance their portfolios.
For example, think about a person who is 67, recently retired or hopefully preparing to retire. In that person’s lifetime, the Dow has weathered the Cuban Missile Crisis, the Kennedy Assassination, Vietnam, Watergate, Black Monday in 1987, wars in the Middle East, and who knows how many other geopolitical and natural disasters. And through all that, the Dow has grown approximately 120X since 1950. In a sense, volatility is just a tax investors pay on that growth.
I doubt you’re going to get that kind of long-term investment perspective from an app or cable news. But you will get that perspective from my team at Keen Wealth. We understand that it can be emotional to click on your account during some turbulence and see that your numbers are down. But we’re on this journey with our clients for a lifetime. We believe it’s our responsibility to provide clients with the expert experience, advice, and perspective they’ve hired us to deliver. And right now, we believe that the best thing that most people can do is stay calm and stay the course.
But if the market’s fluctuations have you unsettled, step one is to put your phone down, close your computer, and take a breath. Step two is to call my team of fiduciary advisors. We’ve guided our clients through this kind of normal correction before, and we’re well-prepared to do so again.
Bill Keen on Market Volatility…
“Despite recent volatility, our analytics continue to predict a strong market for 2018.”
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.