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  3. Does Your Portfolio Embrace Market Volatility?

Does Your Portfolio Embrace Market Volatility?

Submitted by Davenport Watts & Drake Investment Advisors, LLC on April 20th, 2016

 

Unquestionably the stock market has experienced severe volatility in recent months. But a review of the historical record provides a clearer perspective on market volatility over the decades that actually favors investors who manage to hang on even in the worst of market declines.

Since World War II, the stock market has experienced, on average, an intra-year decline of 14 percent each and every year. In that same period, the market ended lower, on average, by 18 percent every third year. Bear markets, with an average decline of nearly 30 percent, have occurred every fifth year. Yet, over that same span of nearly seven decades, stock market values have grown 100-fold, which means that, $1,000 invested in the stock market 70 years ago would have grown to $100,000 despite the periodic market declines.

The take away from this is that market declines have, thus far, been nothing more than a momentary interruption in an enduring market advance. Hence, volatility is simply a necessary phenomenon of a market that works. The stock market decline of 2008 will turn out to be nothing but a small blip for a portfolio invested for 20 years. 

It took years for the investors who fled the market in 2008 to recoup their losses, while those who kept their sights on their objectives and otherwise stayed the course have enjoyed record gains in their portfolio.  This clearly illustrates the human-induced danger of market risk – the risk of locking in losses as stock prices fall.  History shows that the stock market rewards investors who avoid harmful behavioral traps such as attempting to time the market. The real detriment to an investor’s portfolio isn’t participating in the market decline; it’s missing out on the market return that follows.

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Davenport Watts & Drake Investment Advisors, LLC (DWD) is a Registered Investment Adviser, duly registered with the State of Mississippi in accordance and compliance with applicable securities laws and regulations.  In that the firm may only transact business in states in which it is properly registered as an independent advisor or in which it is exempted or excluded from the registration requirement, only residents of the State of Mississippi and those states with an established de minimis rule may receive investment advisory support services accordingly from DWD.  DWD does not render personalized investment advice over the internet.  In no event shall the presence of this website on the internet be interpreted or construed as a solicitation to provide investment advisory services outside of the State of Mississippi or outside of those states with an established de minimis rule regulating the sole and exclusive jurisdiction in which DWD is registered as an investment adviser.  In the future, should DWD seek to solicit investment advisory clients in states outside of the State of Mississippi or outside of those states with an established de minimis rule, an investment advisor registration would first be procured by the firm in such state or states outside of the State of Mississippi or those states with an established de minimis rule. 

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