As you can see in the chart above, the S&P 500 ended within 1 point of where it began. We saw the market gyrate back and forth in a 7.5% range between January and July. 7.5% up and down is not normal volatility, but then things got worse at the end of July. The S&P 500 plunged about 20% and then continued to gyrate up and down in a 15% range.
You can also see that it was a sideways market. Because of that high volatility and the lack of trend, I generally kept the accounts conservatively invested. There was a large amount in bond-oriented or bond-like investments and in cash/money market. There were times throughout the year when the market appeared to start to trend and as a result, I began moving money into stocks only to quickly exit those positions when it became obvious it wasn’t a trend.
The result of that conservative positioning is that the volatility of my client’s accounts was very low relative to that of the market and so they generally did not experience prolonged plunges or wild movements up and down. That’s considerably different from what buy and hold investors experienced. In fact, just like in 2008, many buy and hold investors reached their pain threshold and quit investing in the markets altogether. Many of those buy and hold investors aren’t going to be able to reach their long-term goals because they’ve had such bad experiences.
How then can investors make sure to avoid such terrible experiences?
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