The Market Is Up. What Does It Mean?

By Mitchell J. Smilowitz, CPA

The major stock market indices posted some of the largest one-month increases ever in April. The Dow was up over 11%. The S&P 500 increased by more than 12.5% and the NASDAQ soared nearly 15.5%.

What can we take away from these results?

Volatility Is Still With Us

Volatility refers to wide swings in the market – both up and down. We are happy to see upward movement such as occurred in April. At the same time, we know that the situation is fragile. We’ve seen several days over the last month when a single bit of news resulted in market changes. In 9 of 21 trading days in April, the Dow Jones Industrial Average (DJIA) moved more than 2% – over 400 points. The DJIA moved up six of these days and down the remaining three days.

Until the pandemic is under control and the economy reopens, it is prudent to anticipate continued stock market volatility.

A Diversified Portfolio Is the Best Strategy for Managing Market Volatility

The most important factor in reaching your retirement goals is how much you save. The second most important factor is diversification. The way you divide your portfolio among stocksbonds and stable value investments has a major impact on your ability to reach your financial goals.

Diversification is important because no single asset class produces the best returns year in and year out. A well-diversified portfolio allows investors to mitigate some of the volatility associated with any one asset class.

This doesn’t mean your asset allocation should never change. When you are younger, your portfolio can be more aggressive because you have more time to make up for short-term fluctuations. A review of model asset allocation portfolios shows how your asset allocation can change by both age and your risk tolerance.

Keep a Long-Term Perspective

You can summarize the take-aways from April’s market rebound in one short sentence: Keep a long-term perspective. Selling equities in response to short-term market fluctuations – even the tremendous decline we saw in February and March – would have created long-term losses in your retirement savings. You would have missed April’s record-setting gains.

While historic performance does not guarantee future results, over time stocks have outperformed other investments. Looking at 5-year periods since 1926, stocks provided gains 87% of the time. Looking at 15-year periods, stocks increased in value every time.

These are trying times. Financial concerns can magnify worry about the health of our family and our community. The JRB can assist you to answer your financial questions so you can focus on supporting your family and friends. Please call us at 888-JRB-FREE (572-3733) or send us an email to set up an appointment.