With the Labor Day holiday weekend behind us, summer is officially winding down. As many of you know, I always get excited this time of year as the National Football League season kicks off. In addition, the St. Louis Cardinals look likely to appear in the playoffs so for sports fans like me, this is a very exciting time!
For investors, the recent price action in the stock market during August was far from exciting. Volatility has rapidly increased over the past few weeks. In fact, the Volatility Index opened on the first trading day in August at 12.85 and reached a high of 40.74 on August 24th. This represents a nearly three fold increase in volatility in less than three weeks. The rapid increase in volatility and heavy selling moved U.S. stock market index returns firmly negative for the year.
S&P 500 Index Year-to-Date Return through August 31, 2015 – -4.21%
Dow Jones Index Year-to-Date Return through August 31, 2015 – -7.27%
Russell 2000 Index Year-to-Date Return through August 31, 2015 – -4.18%
In past commentaries, I have discussed using alternative investments, diversification, and using a more conservative asset allocation to help weather marketplace volatility. While we will never try to time the market or move our overall portfolio entirely into cash, we will use our asset allocation as a mechanism to help weather periods of financial market stress.
Before the selling pressure initiated in early August, we were already in a more defensive, diversified portfolio across all of our internal asset allocation models. When pairing our more conservative portfolio construction with the use of alternative investments and variable annuities, I believe we have added value to our clients by helping to remove some of the anxiety that comes with heightened periods of stock market volatility.
Experienced investors know that when there is blood in the streets and market participants are panicking, huge opportunities can exist. The key to taking advantage of volatility and riding out periods of market turbulence is to remain objectively focused and to set emotional responses aside.
Panicking is almost always the wrong response to financial market stress. As financial professionals, we help add value to our clients by following a financial plan that is focused on our clients’ appropriate risk tolerance and investment diversification. While the future is always uncertain, we remain committed to assisting our clients in remaining focused on their long-term investment objectives.
I want to remind readers that our One Club Golf Tournament is rapidly approaching. The event will be held on Friday, September 18th at the Bear Creek Golf Course and will help provide our special children in Honduras with much needed financial support. For more information or to sign-up to participate, please contact our office. In closing, as the summer fades into autumn, stay healthy wealthy, and wise, and certainly . . . stay tuned.