Don't panic over recent stock market downturn

Until early May, the major stock market asset classes had done very well this year – making many investors comfortable, if not happy. However, it was a different story from the “high water” mark of May 9th until mid-June.

The table below summarizes how drastically the year-to-date (YTD) total returns of four major stock market indices decreased between May 9 and June 14.

Was this recent poor performance just a short-term blip, the beginning of a long-term slide, or something else? What is an investor to do at this point?

History has shown that stocks go up in value over the long run, but that over shorter periods of time – sometimes days, weeks, months, even years – stocks can lose value. Because nobody can consistently predict what the stock market will do, and studies have shown that trying to “time” the stock market is a loser’s game, the best approach to investing is as follows:

• Determine an asset allocation strategy that is appropriate for you
• Diversify your portfolio among a variety of asset classes
• Periodically rebalance your port­folio when it strays from your desired allocation
• Stick to your asset allocation strategy through thick and thin

The moral of the story? Don’t do something drastic because of the re­cent stock market downturn, such as selling your investments and sitting on the sidelines until you think the market is on its way back up again. Remember that investing is a long-term process that requires patience and discipline.

Many investors let their emotions get the best of them, causing them to buy and sell at the wrong times. At Mentor Capital, we maintain a dis­ciplined and objective investment ap­proach that helps our clients “stay the course” during the inevitable peri­odic downs and ups of the stock market. If you would like to learn more about our approach, and/or receive a complimentary analysis of your current portfolio, give us a call.