2018 Market Volatility – February 2018

The recent volatility in the global stock markets inevitably has clients asking, “what should I be doing?”.

Considering the market, the U.S. in particular,  has been on a bull run since 2009 moving to record highs and double-digit gains, it’s not entirely unexpected to experience a pullback.

The reasons for this latest volatility is an uptick in U.S. inflation and with that an expectation of interest rate increases. This in fact is not bad news but good fundamental economic news.

Inflation means people are spending, wages are rising and unemployment is low. Central banks raise rates to keep that inflation (economic growth) in check to a degree, so not to have ‘boom and bust’.

So those fundamentals are sound. But as stated, the U.S. share market has been on the up for a while. It rose by 21.8% for the twelve months to 31 Dec 2017 and in January 2018 it rose another 5.62%. That’s unsustainable. So this inflation and interest rate noise coupled with an all time high has seen it ‘let off some steam’ – albeit at this time of writing this article we have already seen some of the losses over the last couple of days come back as gains.

Then in Australia, we haven’t had unexpected inflation or any sign of a interest rate rise, but, we get caught up in the whole market turbulence. But that’s how markets work in our modern connected world.

Even the most experienced investors can get spooked by heightened volatility in financial markets. When stock prices are tumbling, the urge to do something—anything—can be overwhelming. As we have said on many occasions, at times like this, selling is not always the most appropriate response to market turmoil.

In fact, for some investors, there may be occasions when periods of heightened volatility may present a good opportunity to consider buying.

No one wants to lose money when investing—that’s not the goal. At Rothgard, as you know, we go to some effort with you to quantify and put a timeline on your goals. So keeping sight of your goals and sticking to a well-defined plan can help. It is important to avoid emotionally driven behaviours which can be detrimental to reaching one’s long-term goals.

One thing we have learned over a long time advising clients is that trying to predict market declines or rallies is not the path to long-term success. Much more important, in our view, is preparing for incipient shocks smartly and strategically.

Managing risk is at the heart of our investing advice. If the recent events are of considerable concern to you, and you are uncertain of the level of risk that is appropriate for goals, then let us know and we’ll be happy to organise a time to review your situation.

This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.

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