Markets in Turmoil
Financial headlines this week have been filled with fear.
Some investors might take cue from negative headlines to cut their investment exposure, however that might not be wise as one study shows that stock markets have been higher 100% of the time in the next 12 months every time one of the major news outlet broadcast scary headlines.
Stocks take a beating
Popular stocks such as Nvidia and Tesla declined more than -20% between 16 July to 5 August 2024.
Cryptocurrencies such as the iShares Bitcoin trust declined -18%.
The Nikkei 225 index which is a broad representation of the Japanese stock market declined -22.48% in USD terms.
The Nasdaq 100 index which is a representation of the 100 largest companies listed on the Nasdaq stock market declined -12.26% over the same period
Global Stocks held up better
While large returns are nice, it is more important that you do not expose your portfolio to large losses. As we have previously written, the climb back from losses is much steeper as the magnitude increases. If you were properly diversified, you are probably unfazed by the recent correction.
The MSCI ACWI Index, which is a broad representation of global stocks from both developed and emerging countries, declined a modest -8.27% during the same correction period. Despite the recent losses, the index is still up +7.42% for the year.
Stock Market Corrections are Normal
It is important to remember that market corrections are a feature and not a bug.
Typically markets experience about one correction of -10% each year on average.
For 2024, the one -5% correction so far and no -10% correction puts it below the historical average record.
Stock gains can add up after declines
Global equity returns have, on average, been positive after corrections of up to -10% in the following one-year, three-year and five-year periods.
Corrections are often buying opportunities to capture the long-term benefits that the markets offer.
Risk signals
Investors with GYC have the comfort of knowing that Risk Matrix will inform us if the correction leads to a larger structural decline in which we are able to respond quickly to cut risk and conserve capital for our investors.
So rest easy, take advantage of market opportunities and Simply Invest.
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GYC applies the best ideas from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy.