Increased market volatility, which has commanded increased headlines in the days leading up to the November mid-term elections, has caught many by surprise. However, David S. Spika, chief strategic investment officer for GuideStone Financial Resources, noted that stock market volatility is a common and normal occurrence.
The stock market — as measured by the S&P 500 Index, experiences price swings of 1 percent or more 62 times a year on average. The same broad index of the stock market averages only 71 trading days between declines of 5 percent or more.
“The recent sell-off may feel unsettling to investors because they have been lulled into complacency by an historically low-volatility environment over the past couple of years,” Spika said, “but it’s actually quite normal and nothing to be concerned about at this time.”
Fears of rising interest rates and the impact that higher rates may eventually have on the economy is driving this current market volatility, Spika said.
“As the economic cycle matures — we are now in the 10th year of the current expansion — economic growth and employment gains force the Federal Reserve to raise the Fed Funds rate to prevent an outbreak of excessive inflation,” he said.
Additionally, fears about the ongoing trade negotiations with China, tariffs initiated by President Trump and the outcome of the mid-term elections also may have stoked the current market volatility.
While volatility can be unnerving, the best course of action for retirement investors is to stick with their long-term asset allocation plans.
“It is impossible to time the market,” GuideStone President O.S. Hawkins said. “In fact, the market has historically rewarded those with long-term perspectives. Retirement account performance moving forward is based on results of the financial markets in the future, not in the past.
“While it’s easy to focus on the headlines and emotions brought on by the 24/7 news cycle, GuideStone believes it is best to avoid overreacting and for investors to stick to their long-term plans,” Hawkins said.
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Source: Baptist Press