Is It the End of Low Volatility?
By Brad Sherman via Iris.xyz
Whether you view the recent stock market sell-off as an adjustment to permit the markets to climb higher on a more solid base, or were nervous about the sharp short term “loss” of unrealized gains, it’s clear that the stock market’s meteoric, historically-long winning streak hit a bump in the road this week.
Draw downs and sell-offs are normal, but they are still painful when they occur. The market calls it a “correction” but, to the individual investor seeing their net worth drop, it never feels “correct,” particularly since it’s impossible to accurately predict when the volatility and the draw down in prices will end.
It’s hard for anyone to really anticipate what their own risk tolerance will be until it’s put to the test. In moments of calm, we all want to think we’ll have the presence of mind to remember that the market is cyclical and that downturns and corrections are often an opportunity. Things might look a little different though, if your child’s 529 plan funds just shrank, or if you’re nearing retirement and are counting on an IRA and a 401K, or if you were just about to take some earnings to finance an important project.
Notice how you felt on Monday as the market dropped again: it’s a good insight into your current risk tolerance.
Market values have increased dramatically in the last few years and in 2017 in particular. This current market volatility comes after the longest period in history without a correction and with remarkably low volatility.
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