Investing and weather: Dealing with volatility

The weather changes. The stock market changes. Both can be volatile. We want you to be comfortable with investing volatility.

On April 14th in Michigan it was 70 degrees and sunny during the day. That evening, the temperature declined to below 30 degrees. Overnight, it snowed 3 inches.

What happened?  The weather was very volatile.

For some people, this change in weather was not a big deal. They realize that these things happen in the Midwest every few years. It was unexpected but occurs. They knew the snow would melt within a few days and spring would resume. Even after what many consider the worst winter in history, spring will still arrive. It always does.

Some people may have been surprised by this change in weather, as they did not anticipate it. Others may have been more prepared, as they got better information from a weather forecast which turned out to be accurate. Even with the better information, it would be difficult to avoid the cold and snow. This would require a quick change in plans and expensive last minute travel costs.

So how does this relate to your investments?

The weather changing is comparable to volatility in the stock market. The stock market fluctuates. It can go up. It can go down. Up and down are both considered volatility, though most people don’t mind investing with upward volatility.

The weather and stock market are generally unpredictable, especially in the short term. It is hard to accurately predict what the weather will be next week. It is also difficult to predict what the stock market will do next week. With an advisor’s assistance, you can learn to become comfortable with the volatility of the stock market and investing.

Let’s change the focus from volatility to risk. Would you bet $1 million on the weather? We know it will (usually) be warmer in July than in May. But we can’t be positive. We assume it will be colder in February than in December. But would you actually make that bet? It would be risky.

We are confident that investing in a highly diversified global portfolio of stocks will perform well over the long term, as defined over many years. We don’t know what will happen to your portfolio tomorrow or next month. As your time perspective gets longer, the risk goes down. We know that being patient and sticking to a well developed investment plan that we have structured since 2008-9 has paid off.

Investing in the stock market means dealing with volatility. You have to live with the ups and downs and the uncertainty. The benefit is the opportunity of greater rewards, which increase with a longer time perspective.

If you study the financial history investing in the stock market (which we have done and continue to do on our clients’ behalf), we know that declines are always temporary. The stock market has always recovered from temporary declines to reach new highs.

It is our goal to provide you and your family with excellent financial advice. We provide our clients with the comfort and security to handle the volatility of the stock market, so you can benefit from these long term gains.  We want you to sleep well at night. Even during a thunderstorm!

Note:   This is an revised version of the quarterly client letter that was mailed to our clients in April 2014, along with their easy to read and understand quarterly statements.

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