Nov 6, 2018

FDP Special Market Commentary

Volatility has certainly returned to the financial markets this quarter!  Staying invested in a volatile market takes a certain amount of intestinal fortitude, but it’s not without reward.  The chart below demonstrates how difficult it is to time the market – you have to be right twice – when to sell out of the market and when to buy back in.

Returns of S&P 500

The penalty for guessing incorrectly is significant.  For example, the total return for the S&P 500 Index during the 20-year period of 1997-2016 was 7.68% annualized (per year average).  Missing the ten best performance days during that 20-year period reduced the annualized return to 4.00%, nearly half of the return per year wiped away because of just ten days over 20-years.

Many times, as was the case in August 2015, the best performing days are preceded by the worst performing days.  It is in these moments when disciplined investors are rewarded for staying the course while others find themselves on the wrong side of two significant events – deciding to sell right after the worst performing day and then deciding to buy back in after the best performing day.

During times of volatility, it is important to remember the basic principles of investing; constructing a long-term investment plan with an appropriate investment policy statement, proper asset allocation, diversification, and discipline.  As your advisor, our job is to remind you of these basic investment principles so that you stay the course and have the best opportunity to achieve your long-term financial goals.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

Job Growth Blows Past Expectations

The U.S. Bureau of Labor Statistics reported that the economy added a whopping 254,000 jobs in September, about 100,000 more than economists surveyed by Bloomberg had projected. The unemployment rate, expected to hold steady at 4.2%, slipped to 4.1%.

A Fed Rate Cut and Your Mortgage Rate

A recent online advertisement from a major bank read, “The Fed just lowered interest rates. Could refinancing save you money?” There is an implicit assumption in the ad that the Fed’s half-percentage point rate reduction brought about a significant drop in mortgage rates shortly following the decision.

Boom – Fed Opts for 50

On Wednesday, the Federal Reserve announced a 50-basis point (bp, 1 bp = 0.01%) rate cut for the fed funds rate to 4.75 – 5.00%, its first reduction since 2020. The announcement marks the end of the most aggressive rate-hike cycle since 1980 when the Fed funds rate rose a whopping 11 percentage points (1,100 bps) in just 6 months.

A Green Light for the Fed – in Three Graphs

All indications point to a rate cut by the Federal Reserve this week. What’s behind the Fed’s rationale? Let’s look at three key metrics. Aided by lower gasoline prices and stable prices for consumer goods, the rate of inflation has slowed dramatically.

August Melt-Up Follows Brief Meltdown

Market pullbacks are to be expected. They are incorporated into the financial plan. But like an unexpected traffic jam, they are exceedingly difficult to predict. Early August was one such event. The turbulence began at the end of July in the wake of seemingly minor news—the U.S. BLS reported another rise in the unemployment rate, which forced some investors to re-evaluate their view of a recession.