Market Volatility
September 25, 2008
Andrew Sweeny, Jr., Registered Principal
HORAN
 
I started in the investment business in 1987. Do you remember October 19, 1987? It was a dramatically down day for most market participants. If you check your calendar it was a Monday. I was in Indiana calling on a broker who had spent his career in the investment business. He sold his clients mutual funds and fashioned himself a market timer. When we met, all of his clients were in stock funds and it was too late to move their assets to cash. Monday, October 19, 1987 taught me a lot about market timing.
 
Many individuals outside of the investment industry think someone inside the industry has secret knowledge of the market or has a corner on a particular truth that allows one individual to profit while everyone else loses. I believe there is no single truth in the investment business but rather a number of investment truths. I have listed a number of truths about the market. I hope they provide a measure a comfort in these volatile times.
  1. Look at the historical returns of Large Stocks, Long Treasuries, Long Corporates, and T-Bills. Over time the record shows, the best, albeit the most volatile, place to be is in Large Stocks. The chart below shows the growth of one dollar invested in 1926.                                                                                                 
    Total Returns chart         Data and chart from www.investorsfriend.com

     
  2. Market timing does not work.  Often knowing when to step aside is not difficult, but when to get back in the market is an extremely difficult decision.  
                   
           continually invested chart                                            State of Wisconsin Investment Board                                                 

  3. Understand the lessons of the efficient frontier as it relates to stocks and bonds.  By having a balance of stocks and bonds in your portfolio, you can reduce risk significantly with a minimal reduction in return. Efficient Frontier Chart
  4. Make sure you have a well diversified portfolio.
  5. Know your investment goals, time horizon, and your ability to handle risk.
  6. Volatility in the stock market is normal. Today's bear market is laying the groundwork for the next bull market. 
  7. Consider increasing your contribution to your retirement plan.
  8. Don't panic. Stay the course.

Please contact Andrew Sweeny or Scott Thole with any questions at 513.745.0707. 
 
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