Markets Selloff This Week

It was a turbulent week in global stocks. Wednesday and Thursday combined the S&P 500 dropped roughly 3.8%, putting some fear back into investors after a very calm and profitable start to the year. Thursday was especially volatile with a drop in the DJIA of nearly 350 points.

SPY 2 day 6-20-13

Despite panicked headlines, it’s important to take these numbers into perspective.

For one, a single-day drop of 347 points in the DJIA doesn’t even crack the top 20 worst historical days, and represents a decline of just 2.3%.

Second, the S&P 500 is still up 11.36% (not including dividends) in 2013 through Thursday’s close, which would be a pretty good year for the markets if we just stayed put right here for the next six months.

SPY YTD 6-20-13

Lastly, and most importantly: 2 days in the market doesn’t make or break long-term investment success. We have to expect market declines, we must welcome them as part of the process of being long-term investors. Volatility is the price we pay for expected returns over and above what we can earn in the bank. Over time, “big” down days in the market disappear as our time horizons grow longer.

So go now, turn off CNBC, quit looking at your portfolio balance and enjoy the summer solstice. I mean it.

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