Stock market volatility? It’s in the eye of the beholder. Stay calm

Aug 25

Aug 25 Stock market volatility? It’s in the eye of the beholder. Stay calm

On the last Wednesday in July, I got several phone calls from clients. On the last Friday in July, nobody called. Why the difference? On Wednesday, the S&P 500 dropped 1.52 percent and the Nasdaq composite dropped 1.74 percent. On Friday, the S&P 500 gained 0.7 percent and the Nasdaq gained 1 percent.

Plenty happened in between those two days. The Federal Reserve held rates steady and gave no guidance about what comes next. Major international companies reported earnings; one gained 15 percent and another lost 7 percent. Oil prices moved based on the war with Iran. All these events earned headlines. None of them changed where the month ended.

For the last week of July, the S&P 500 and the Dow each finished up about 1 percent. For the month, the S&P 500 finished down 0.1 percent and the Dow finished up 0.3 percent. A volatile month ended almost exactly where it started.

How volatile your portfolio feels depends mostly on how often you look at it. Daily prices jump around. Weekly prices jump less. Monthly prices are smoother than weekly, and annual prices are smoother than monthly. Checking more frequently does not change your investment. It does change your level of anxiety.

To understand this, think of the value of your house. Most people believe home values rise steadily along with inflation, and they believe it partly because nobody appraises a house every morning. If strangers knocked on your door each day with firm cash offers, you would watch your home value fluctuate the way your 401(k) does.

Frequent checking produces fear. Losing money feels considerably worse than gaining the same amount feels good, so every look at a falling balance registers as a small emergency. The more emergencies you live through, the more likely you are to act on one. I have seen clients sell because of a sudden drop and then spend two years waiting for a re-entry point that never felt safe enough.

Since 1980 the S&P 500 has fallen an average of 14.2 percent at some point during each calendar year, according to J.P. Morgan's Guide to the Markets. Annual returns were still positive in 35 of those 46 years.

Even the worst stretch on record is milder than most people assume. The weakest ten-year run for the S&P 500 in the modern era was 2000 through 2009. It included a 22.1 percent loss in 2002 and a 36.6 percent loss in 2008, yet the decade’s annualized loss was 0.95 percent. Investors who held through the two worst years came out roughly even after ten years.

The S&P 500 spent July going nowhere. Whether that month was calm or nerve-racking depended on how often you checked your portfolio. Over the years I’ve received plenty of client calls about dramatic daily market drops. I have never had a client call about a flat month.

So my suggestion is to look less often, even if you have to start gradually. Move from daily to weekly. When weekly stops bothering you, move to monthly by reading statements when you get them instead of logging in at other times. To make it easier, turn off price alerts on your phone and take brokerage apps off your home screen. This reduces opportunities to react.

I wrote several years ago that the only thing you can count on the stock market to do is fluctuate, and that the wisest response is usually to do nothing. Nothing in the past few weeks has changed my mind. Looking less often will not change your return. It will make you far less likely to damage the return you already have.

Rick Kahler, CFP®, CFT™, is a pioneer in financial therapy and a 2026 inductee into the Financial Therapy Hall of Fame. He is the founder of The Financial Therapy Podcast and Kahler Financial Group, and co-author of “Coupleship Inc.” and “The Financial Wisdom of Ebenezer Scrooge.

The information provided is for educational purposes only and should not be construed as investment advice. The views expressed are subject to change based on market or economic conditions. Past performance is not indicative of future results. Any reference to potential benefits is illustrative and may not apply to your individual circumstances. You should consult with your financial adviser before making any investment decisions. KFG, LLC is an SEC-registered Investment Adviser.

Photo: public domain, wikimedia commons

The South Dakota Standard is offered freely and is supported by our readers. We have no political or commercial sponsorship. If you'd like to help us continue our mission to advance independent political and social commentary, you can do so by clicking on the "Donate" button that's on the sidebar to your right.