Maybe you thought the August stock market update would be dismal. To be fair, there’s some truth to that.
US stocks, developed international stocks (from countries in Europe and Japan), emerging international stocks (from countries including China, India, and Brazil) … markets from literally all over the world were down during the month of August.
And yet if we widen the time frame a bit, we discover that this year has been quite favorable so far.
Rather than zeroing in on a single month, let’s take a look at 2023’s returns through the end of August. Furthermore, let’s compare them to 2022’s returns through the same point last year.
Even with August’s declines, compared to last year’s returns during the same time frame, stocks were up by the end of August – and in some cases, significantly.
It’s important to note that this year’s gains began at the end of last year’s losses – in other words, there was lost ground to make up for.
Yet it’s also worth pointing out that anyone who decided to exit the market during last year’s downturn would have missed out on the gains we’ve seen in 2023.
The danger of selling while the market is low is that nobody knows when stock prices will increase again. So, in addition to losing out by selling low after buying higher, you also run the risk of later missing out on any recovery.
So, how do we help our clients avoid the risk of over-inflating the impact of a downturn – or worse yet, making decisions you’ll regret?
For one, perspective.
We can help you maintain focus on the big picture and your longer-term goals. Markets will fluctuate, and there will be down days and months – even years. But by taking a step back and focusing on the long term, however you define that term, we can maintain greater perspective.
More tangibly, we help our clients cushion volatility through a customized asset allocation. As you know by now, it’s your specific goals, timeline, and risk tolerance that informs the combination of assets (stocks, bonds, high yield bonds, and cash) selected for your portfolio.
If you’re risk-averse or working with a shorter time frame, one’s asset allocation will typically include fewer stocks – which generally mitigates the impact of downturns on an overall portfolio.
If you’re more comfortable with risk, or your timeline is longer, one’s asset allocation will typically include more stocks. Increased risk tolerance and/or a longer time frame can help prevent you from making emotional decisions that might trigger regret later.
It’s our job to get to know you, listen carefully, and design an asset allocation that suits your particular needs.
So as long as your time frame remains the same, and there haven’t been any major life changes that would require a change in asset allocation, there’s likely no need to make major changes to your portfolio.
You can move forward with August’s declines in your rearview mirror – and take time to appreciate (at least momentarily) this year’s stock market gains.