September Historically Is A “Painful” Month For The US Stock Market
$DIA, $SPY, $QQQ
Not panicking in times of market turmoil tends to pay off.
Historically, September is the worst month for financial markets, though compared with August’s turmoil, an average 1.1% drop in the Standard & Poor’s 500 Index feels tame.
In case last month’s volatility was a warm-up, you might want to reflect on the power of some basics that action brought to light.
A 6.5 year Bull run without many big pullbacks or corrections may have made a fairly steady ride feel like the new normal. As many participants forget that it is normal for stock markets to periodically see intra-year declines in the 5 to 10% range.
Intra-year falls of 5% from high to low happen on average about 4X a year, with a recovery period of 3-4 months. The drops can take place over days, weeks, or months. Participants see 10% declines about once a year, on average, followed by a recovery period of about 8 months.
Moral of the story:
- The recent market swings were pretty harsh, but it was the lack of volatility for long stretches that was really abnormal.
- Lower prices reduce the value of a portfolio, and also cheapen the cost of the stocks in the which you buy in the future.
People selling ETFs (exchange-traded funds) into market swings found out how useful limit orders can be. In the midst of a big market drop (and a technology breakdown, unrelated to the market, that may have caused some investors to overpay for ETFs), ETF pricing got very of. Many stock ETFs fell much further than their underlying holdings did, because some of those underlying holdings were halted by stock exchange circuit-breakers.
If your 401(k) holds well-diversified, low-cost funds, you can largely ignore the volatility, as it dollar-cost-averages. If you’re not in a TDF (target-date fund) that rebalances automatically and your equity stake has grown a lot, you would probably want to move some money out of stocks. In this case the stock market has done it for you.
Not panicking in times of market turmoil tends to pay off.
Fidelity Investments found that pre-retirees who sold all their stocks in late Y 2008 or early Y 2009, near or at the market bottom, and never rebalanced back into stocks saw their 401(k) balances increase nearly 26% as of Y 2013’s Q-1, to an average of $101,000. That does not sound so bad, until you look at how the pre-retirees who did not sell out of stocks did. Their average balance nearly 2X’d, to $255,000. It took about 4 yrs.
Have a terrific week.
HeffX-LTN
Paul Ebeling
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