Market Volatility is Normal

If you listened to the news media this summer you might have thought the sky was falling. The sky is fine and the markets are sound, we are just experiencing the return of normal volatility. Yes, the markets go up then down and up again but this is normal. I love the chart below because it illustrates how volatile the markets usually are in any one year. For instance, in 1998 the S&P500 index (ex-dividends) generated a 27% return but at one point during the year the index was down 19%. The index has generated on average an annual 10% to 11% return despite suffering an average mid-year drop of 12.7%. The moral, stay focused on the long term (at least a three year if not 10 year time horizon) and ignore the day-to-day gyrations of the market.

If the graph is tough to read then click on it. The graph will then appear larger.