The year 2011 could be remembered for the unsettling volatility seen in the S&P 500 index, a measure of large company US stocks. January offered a promising start with a 2% gain and by April, the S&P was up 8%. Wobbling followed during May and June, and volatility really began in mid-July with the index diving 17% in just 11 days. In August, the index rose or fell 4%+ on 5 of 6 consecutive days.
Stocks hit their bottom in October (down 13% at that point) as the WALL STREET JOURNAL ran an article citing a number of professional advisors who recently sold all their stocks and did not expect to repurchase them anytime soon. This article appeared on the second day of a powerful rally in stock prices, with the market moving into positive territory again in 19 days.
In the end, stock investors around the world saw disappointing 2011 returns with 37 of 45 tracked markets ending in negative territory. The US was the only major market with a positive return, with the S&P 500 ending 2011 up 2.1%.
With 2011 fresh in our minds, it’s easy to remember the volatility and below average investment returns. A thought is “are these the right things to remember for your investment management over the years?” After all, volatility and below average return years do happen and will, no doubt, happen again.
I suggest the right thing to remember now is that, while it’s emotionally difficult to ignore market volatility, doing so by remaining invested per your diversified investment strategy will serve you very well. Some of the coming years will be difficult (as was 2011), others good or great; however, over those years, you can expect better investment returns than those who give up during volatile times.
William M. Thompson, CFP®
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