Does a Dipping Market Mean I Should Swap Out Stocks?

Following is a new monthly feature called “Ask HighTower.” We hope it provides valuable perspective and informs your thinking about the markets.

Dear HighTower Las Vegas,
Should I be worried about this week’s dip in the markets? What, if anything, should I change about what I’m doing with my investment dollars?
Liz T.

Dear Liz,
The market has been choppy so far this year, but what we are seeing is actually quite normal. It’s just a matter of perspective. We’ve been a bit spoiled by a period of extremely low volatility. Over the past 25 years, approximately one out of every four (25%) trading days saw the S&P 500 move up or down by more than 1%. However, from 2013-2014 that number fell to just 15% — so people began to expect consistent returns that are not actually the norm. So far in 2015, we’re back to a period of movement on roughly 25% of the days. It’s nothing out of the ordinary, but it feels much different than a couple of years ago.
The return to more normal market conditions is actually quite positive in our view, but investors need to understand or relearn what to realistically expect. On average, the market corrects (i.e., falls by more than 10%) about every 15 months, according to the Stock Trader’s Almanac. While those episodes can be painful, they are actually quite healthy. Corrections keep speculators from running rampant and help prevent bubbles from forming, which in the end are far more painful than the average correction when they pop.
Despite corrections and bear markets, stocks have proved time and time again to be a great source of wealth creation over time. The important thing to remember is those last two words:  over time. At 44 months since our last major market correction, we are due for a market pullback. Should you run for the hills? We think not, unless your time horizon is too short to handle market volatility. Instead, we believe sticking to a well-crafted asset allocation that is consistent with your financial planning objectives is the better course of action.
Sure, there will be trying times along the way, but if you keep your emotions in check and remain committed to a well-designed strategy, you’ll have the odds of investment success strongly in your favor.
HighTower Las Vegas is one of the most experienced and well-respected wealth management firms in the region with $700 million in assets under management. Feel free to call 702-567-5100 or email the HighTower office anytime for a friendly conversation with a HighTower advisor.

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