As investors, we have been spoiled the last few years, especially last year. We have enjoyed very nice gains with very little fluctuation in prices…things have just gone up quietly.
I have to be honest, I don’t like that. It desensitizes us and makes us forget that wild fluctuations and stock price declines are not only normal, but healthy and necessary functions of a stock market.
This year, so far, has been more normal. Now, it may not feel that way to you because we have all been desensitized. But I assure you, regardless of the half-truths the financial media is reporting, this is completely normal and healthy.
Investors that prefer to not experience volatility have options, they are called CD’s and short-term treasuries. The problem is they won’t help you reach your financial goals… they won’t even help you keep pace with inflation. Herein lies a basic fundamental truth: the reason stocks provide above inflation return is to pay you for putting up with the uncertainty and fluctuation.
We can’t control the amount of fluctuation in asset prices, but we can control how much we are influenced by them. It is a function of how much you pay attention.
And if the market goes down 15%, 20%? Well, that means we will be able to buy high quality assets on sale. That is one of the reasons we are diversified. If stocks go on sale, we have the funds necessary to buy them inexpensively…which will ultimately be to your long-term benefit.