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13 February 2018
February has been a tough month for the stock market: Declines exceeding 10% have erased the year's gains, despite a partial recovery in recent days.
After a 2017 in which the market didn't have any major setbacks, it may feel like a long, ugly selloff lies ahead. But the truth is that market volatility—those violent swings up and down—is completely normal.
Over the past 40 years, U.S. stocks have averaged a more-than-10% decline each year during bull markets. By that measure, last year was the anomaly, not this year. But the question remains: Are your investments safe?
Copeland Wealth Management's investment portfolios are built with the expectation that markets will have normal corrections. We even expect there to be periodic longer bear markets. But historically, markets always end up higher after a few years. In other words, the stock market usually takes two steps forward, one step back, and so on. The key is to remain patient and stay the course.
Nor does the recent correction (a correction is a drop of 10% or more from a previous market high) does not appear to be signaling a recession. Corporate earnings, which drive the stock market, are healthy. And economic growth is on the upswing around the world.
With a recession usually comes a longer period of weakness in the stock market. But without the usual signs of a recession, stocks appear to be poised for modest (but not great) growth over the next several months if not longer. And it's likely that there will be more volatility over the course of 2018. The key to success will be to remain calm in the face of those price swings.
One thing that's not helpful is to pay attention to the talking heads on cable television shouting: "buy buy buy!" or "sell sell sell!." Remember that a lot of commentators out there stand to make money for their firms and themselves if they can convince their viewers to trade stocks based on short-term emotion. Don't fall for it.
With that being said, market pullbacks can present selected buying opportunities. This doesn't mean buying on impulse. Investors should maintain a "wish list" of companies that they want to buy, and a price level at which they're worth buying.
Recently, Apple and Sysco, a food services company, were two stocks on my buy list that fell into my price range because of the market selloff. Again, selective buying, not nilly-willy trading, is vital. You should always work with a qualified, experienced advisor who can analyze the market and specific stocks. Don't hesitate to contact us if you'd like to discuss how to invest in 2018.