After a strong performance during the fourth quarter of 2013, the markets have experienced turbulence so far this year. Much of the volatility during this last month has been attributed to emerging markets and the fear of an economic slowdown.
Some people are alarmed by market volatility, and we recognize this. Remember, the market is open 250 days each year, and something happens virtually every day. The S&P 500 Index has provided nearly a 10% annual average rate of return over the past 80 years. Investors must be willing to tolerate volatility to reap these meaningful returns.
High volatility may not predict poor returns, and tranquil markets may not signal positive returns.
Let me repeat this: High volatility may not predict poor returns, and tranquil markets may not signal positive returns.
Those who choose to flee the markets to avoid volatility may pay a hefty price in the future. While earning virtually no return sitting on the sidelines, they may be subject to serious principle erosion if interest rates tick up.
While we admit it may sometimes be uncomfortable, our advice is to stay the course using global diversification with periodic rebalancing. Trying to outguess the market by timing it or by avoiding it entirely will generally not lead to a successful investment experience.
Following “celebrity” forecasters, many of whom are permanent market bears, is typically a failed strategy. They tend to be right only one third of the time. There is no magic formula.
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