Aaron Schaefer

Feb 07 2018

A Message Regarding Recent Market Declines

Economy and Market Here at Hills

Recent market declines have reminded investors that stocks come with risk. After an unusual period of calm, the stock market experienced a decline of 8% over the last several trading days. The sell-off was triggered by concerns about rising interest rates and what that meant for stock valuations and inflation expectations. A recent report on improving wage growth exacerbated the concern and investor sentiment briefly experienced panic on Monday as the markets declined more than 4%. While this decline is noteworthy and certainly tests an investor’s fortitude, it is not unprecedented. Corrections, or market declines of 10% and 5%, have historically occurred one and three times per year on average respectively. It had been 80 weeks since the last 5% correction, so we were certainly overdue. Because it has been so long though, this recent decline has garnered much media attention, which only amplifies concerns.

In times like these, it is important to focus on the long-term view. Markets do experience periods of negative returns. These declines can be even more pronounced than what we recently experienced. Over time however, markets rise. The Dow Jones Industrial Average had a value of 50 in 1900. It is 24,500 now! The fact that Monday’s decline was the largest point decline on record makes good headlines, but is otherwise not very useful information. A diversified stock portfolio has historically demonstrated the ability to outperform less risky assets such as cash, certificates of deposit and bonds over long time horizons – think 10-20 years. And investing in stocks is one of the best ways to protect against the biggest long-term risk that investors face – inflation!

Our job as your financial advisor is to keep the focus on the asset allocation and the overall risk that you are taking in your portfolio. Your portfolio is designed such that stocks do not need to be sold during times of market stress – like the one we are presently experiencing. As prices rise over time—as they have over the last 18 months or so—regular rebalancing brings portfolio risk in-line and replenishes the reserve of less risky assets that are then used to fund distributions or offset the risk taken in stocks. The goal is to create a more comfortable investment experience so our customers can focus on the more important things in life and not on the whims of the market in the short-term.

Some trust products and IRA contributions/balances are not a deposit, not FDIC insured by any federal government agency, not guaranteed by the bank and may go down in value.
Aaron Schaefer

About Aaron Schaefer

Aaron Schaefer is Vice President, Trust Investment Officer at Hills Bank’s North Liberty location on Forevergreen Road. He has been at Hills Bank since 2004 and manages the investment area of the Trust and Wealth Management division. Aaron can be reached at aaron_schaefer@hillsbank.com.

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