It would seem that the fall is a terrible time for the stock market. At least that’s what I keep hearing from the pundits. Out of the top twenty largest percentage declines in the Dow, all but three occurred from mid-August through year-end. That’s 85 percent! No wonder people start to get a little spooked when the market starts to misbehave a bit this time of year.
What we rarely hear from those same so-called experts is that out of the twenty largest percentage gains in the market, eleven of those occurred from mid-August through December. Why do we focus so much on the bad? Maybe it’s because the agony of defeat leaves a more lasting impression than the joy of victory. Who knows?
Why is it that the market is seemingly more volatile in the fall? There are many theories but none that fully explain the phenomenon. All I know for sure is that each time one of these crashes occurred, the market recovered. As we most recently witnessed in the financial debacle of 2008, it was those that couldn’t stand the pain and ran from the market (usually at the worst time) that were the real losers. Panic kills.
The market goes up, the market goes down – sometimes violently. Understanding how these gyrations impact you, and not getting caught up in the hysteria, is the key. Having and following a well-constructed financial plan that includes assets that are properly allocated and diversified to meet the requirements of your plan is the best way to not panic when the market gets a little spooky.
You don’t have a plan? Now that’s scary!
David J. Seibel is founder and Managing Partner of AGS Aurora Financial Services LLC (www.agsaurora.com), an independent financial advisory firm in Matawan, New Jersey. You may contact him by email at email@example.com.
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