In this month’s edition of “Money Matters,” Scott talks about market volatility through the years and how to best manage your personal financial portfolio when markets seem uncertain or in bear market territory.

10 Worst Single Day Declines for U.S. Stocks

Source: Hartford Funds

Money Matters: Successfully Managing Market Volatility Transcript

0:00:00.3 Mark: WTIP is pleased to bring you another edition of Money Matters, a monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He works with many individuals and has taught retirement planning and wealth management strategies to hundreds of financial professionals. Scott joins us now by phone. Welcome, Scott.

0:00:23.8 Scott Oeth: Good morning, Mark.

0:00:25.6 Mark: The obvious topic is the market's big drop yesterday and actually this morning I heard too, let's go with talking about that a market drop playbook had quite a drop. And with news of these tariffs, any advice on how investors should be handling it?

0:00:46.0 SO: Yeah, Mark, I mean it's hard to ignore, right? So we had a couple back-to-back huge years of upward stock market returns. We've talked a lot about valuations and concern in the market. And now there's, the tariff news is absolutely shaking the market. We had a big down day yesterday. The S&P 500 was down about 5% and we're down quite a bit again this morning. So first thing I want to say up front is, you know, each person's financial situation is unique. They have their own circumstances. Really recommend people do their own research, seek expert guidance, get outside expert opinion, don't rely on just what I'm saying here. We're having a general conversation about things. But you know, I guess with that said, we've been through these types of events before. Okay, I take great guidance in looking at market history. It's said that some of the most dangerous words in investing are this time it's different. There's been many things that have seemed very scary, very disruptive, very uncertain. It's caused a lot of shakiness and turmoil in the markets and we've gotten through those. So, I think try to take a moment and let's try to take a rational view and step out of a lot of the emotion.

0:02:02.7 SO: And I think a big question just, Mark, on everyone's mind is like Kenny Rogers saying about the gambler, you got to know when to hold 'em and know when to fold 'em. I think people are wondering, do I need to do anything? Should I be selling? Should be moving my money somewhere. And really with investing, if you've done good planning, if you built a portfolio that's diversified, it's matched your financial goals and timeline of your spending needs. I really think history is on the side of hold 'em. There've been so many market downturns, economic slowdowns, recessions in the past, we've climbed back from them all and very often much, much quicker than people expect. I've got a chart, Mark, I'll embed and I'll share with the audio when we get this for this piece on my blog. But it goes back to 1981, the 10 worst single day percentage declines in stocks. So yesterday, like I said, the S&P 500 was down about 5%. Well out of these 10, this goes back to Black Monday 1987. I just shared a piece about this on LinkedIn yesterday. It was down almost 21% in one day. The Asian financial crisis in 1997, down almost 7% in one day.

0:03:13.2 SO: And then we get to Global Financial Crisis, 2008. There were numerous days where we're down 8, 9, 9% several of them. Of course, COVID, that's recent memory. So there's been many of these events. Yesterday's drop doesn't even make the top 10 list. Not even close. But here's the interesting thing. If you look at the one year return, where were markets one year out from each of those drops, they were positive, often double digit positive, often in the 20, 30% positive within one year. There's only one instance that was in the fall of 2008, the global financial crisis, when the market had a negative return one year out, it was down 4%. So hopefully that brings some confidence and if like say if you've designed a portfolio and you understood that there are downturns, there will be future downturns, you're well prepared, probably sticking with it is the plan.

0:04:11.8 Mark: Scott that brings... Yeah. And that historical background is really helpful this morning to think through those for those of us that have lived through those market changes. Now, I imagine some investment categories are being hit harder and some are probably faring better in this market.

0:04:28.1 SO: Yeah, it's very true. And that's often the case. You know, we have some, there have been some market events, economic events in the past where the investment speak is people say the correlation goes to one. You know, everything moves in one direction. But very often the idea of diversification, Mark, I remember you and I have a conversation about this early on in money matters, the impact of diversification, it very often helps and helps a lot during times like this. And that's the case. So I would say just following up on the, most often the best bet is to stick with your plan. I shared a piece called Left of Bang, using the military term. Just a couple of weeks ago I posted on my site and hopefully listeners are prepared and take into account these downturns. But that said, I hate to say it, things could get worse before they get worse. And sometimes these seasons do take some time. And so it you need to take a careful look at where you're at. And if you are concerned you have not set aside enough and safer assets or you have upcoming spending needs or you think your job's at risk, well, today is day one of the rest of your life, right? You might just need to try and take a clear rational look at things and say, do you need to move more money into safer holdings? So to your question Mark, what are those? Yes, not surprising.

0:05:45.7 SO: Like a story that repeats itself over and over again. A lot of yesterday's high flyers are the types of investments that are coming under big pressure. Big technology companies, growth companies. Those are the ones turning an eye popping returns recently. Those are the ones under a lot of selling pressure right now. Probably the most important thing to know is cash in the bank as long as you're within FDIC limits, very safe. Bonds where you're lending money to companies and governments, of course there's an array, there's a difference in credit worthiness, but those are deemed to be a lot safer. Historically they've been less volatile.

0:06:20.3 SO: If you're well diversified there in the bond market, it's very likely you're going to get your money back and the fluctuations will be less. And very often when stocks are down, bonds have held their value or even up in value. So we did an episode about bonds. We've done a couple on Money Matters listeners might want to check out. I think it's April 2022 we talked about bonds, but even within stocks there's a range. Not long ago we talked about international stocks. They are doing comparatively well year to date compared to US Company stocks.

0:06:48.5 SO: Many of those areas are actually up and making a decent amount of money. We'll see if that continues. And with market considers to be value stocks, where analysts look at them say where that price is trading is justified by the book value of the company, the dividends, the assets of the company, those seem to be holding up quite a bit better than what analysts would consider growth stocks.

0:07:12.4 Mark: Scott, I'm thinking of the words of my father this morning. My dad always said don't look at the market or your investments every day. Would you agree with that?

0:07:23.1 SO: I think dad's right on, Mark. Very solid advice. You know, often a Rip Van Winkle type approach. So often I think investors are amazed at what the market has done for them over the long term. And my guess, because I've seen this play out many times over the course of my career, I suspect if we're having a conversation a couple years in the future, certainly, 10, 15 years in the future, we'd probably just look back and say, boy, I wish I put more money in the market back in 2025. You know, as scary as it is. So checking it on a short term basis, even in very good market years, there's often drawdowns, there's often negative periods. And so the shorter time period you look at it, the more volatility you see and you realize and you feel. The longer your view, the longer your time horizon, the more it smooths out. It's an upward trend. So, yeah, I'd say I'm with your dad, do not keep continuously checking your portfolio. It's not going to help anything. The financial news really isn't going to help anything.

0:08:22.6 SO: And I'd say be very wary, very politically charged environment and that bleeds into how people are thinking about the economy and the markets and it can really just lead to just a very negative feeling that there's what's called confirmation bias, right Mark? And so we all tend to seek out information that supports our point of view and it's just often not that helpful when we're thinking about long term investment decisions. So I'd say studying history and market history and the history of downturns like we talked about, to me that's a lot more useful in times like this than trying to guess what's going to happen tomorrow with the market. And knowing that equity markets, stock markets have generated really attractive long term returns despite many periods of crashes, downturns, and it's just part of the game. And you and I have many conversations about getting outside and pack and paddle and hiking and canoeing and sitting around a campfire. And I think those are probably much, much more beneficial activities in times like this than staring at the financial news.

0:09:27.9 Mark: Doomscrolling through financial news, is not a good thing. We're talking with Scott Oeth. We'll be talking finances with Scott Oeth on the first Wednesday of the month on North Shore Morning. Scott, excellent discussion, very timely this morning. Anything else you would like to add there this morning?

0:09:43.7 SO: No, I appreciate the chance to talk and I'd say we've got a lot of these episodes recorded on your site and I posted my blog scottoeth.com and I think history can provide a great context and a great lens and good dose of fortitude and encouragement in when times look challenging like this in the markets. So check it out.

0:10:06.1 Mark: That's Scott O-E-T-H dot com?

0:10:09.3 SO: That's it.

0:10:09.6 Mark: All right.