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Give Thanks for Volatile Markets

HAPPY THANKSGIVING!

2022 has been a very volatile year in the financial markets. Today, as you express gratitude for your blessings, remember to be thankful for volatile markets. Without market volatility, you wouldn’t be able to secure the premium above inflation long-term returns from the market. Ultimately, volatility is your friend.

By analogy, think about going on a deep-sea fishing trip. Even with good advance preparation, the wind can kick up and the rough waters that follow can cause you to chart a course that’s different from what you planned. Bad weather is expected occasionally. Volatile markets should be expected too.

The stock market consists of millions of buyers and sellers who, like you, are processing all the information that can impact share prices. It’s important to realize that you can’t control what prices are at any point in time. You have only one vote in the marketplace, just like every other investor. 

Be grateful for being a long-term investor and understanding what’s outside your control. If you can do that, the inevitable bad markets and the heightened uncertainty they bring won’t derail your financial future.

How Bad Markets Can Teach Good Lessons

For sure, the past year in the stock market has been disappointing, but not unprecedented. Additionally, the fixed-income market, which generally provides some protection during down markets, has experienced one of its worst periods in history. 

The best lessons that you can learn from volatile markets are to expect them, experience them, and elect to stay in your seat. 

The world is full of surprises. You don’t know what will happen next. In many ways, that’s what makes life interesting. Be grateful for living an interesting life. 

Every bear market looks different when you're in the middle of it, but almost a century of market history paints a compelling picture of what usually comes next. 

On average, diversified investment portfolios fully recover temporary losses quickly. 

For context, remember that the S&P 500 has been positive in 9 of the previous 10 calendar years. If this year ends in the red, that’s 9 of the past 11 years with positive returns. 

Why Resilience Matters

While good periods in the market far outweigh the bad, stock market behavior is always uncertain. You can prepare for uncertainty by staying focused on the long-term, but you can’t make uncertainty disappear.

Markets have proven that they are resilient over and over again. The more general resilience that you can adopt within your financial life the better. 

The essence of financial planning is to plan for things that you don’t think will happen; to plan for things that you’re not thinking about today. You need to have a margin or error.

Most investors know intellectually that markets go both up and down. How you deal with the bad periods often defines your financial future. How you implement an investment approach that anticipates the full range of market possibilities is important. Start there. Ready for a real conversation?

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