DALLAS (BP) – Volatility in 2018 may buffet the financial markets, which have grown feverishly since the election of Donald Trump in November 2016, according to retirement account assessments by leaders of GuideStone Financial Services.
During 2017, however, all three major equity market indices – the Dow Jones Industrial Average, the S&P 500 and the NASDAQ – set record highs more than 60 times. The Dow climbed 28.11 percent; the S&P 500 climbed 21.83 percent; and the NASDAQ climbed 29.64 percent.
"Volatility was incredibly muted in 2017," said David S. Spika, CFA, chief strategic investment officer of GuideStone, an entity of the Southern Baptist Convention. "There is a market precedent for volatility to soon increase. This period has been the longest period without a 5 percent correction in history. In fact, 5 percent pullbacks have occurred, on average, three times a year since 1928."
Retirement plan participants should not see volatility as a reason to flee the markets, but to ensure they remain focused on their long-term asset allocation, Spika said.
"Volatility can alarm investors, but it's prudent to stay calm in periods like this," he noted. "Back during the Brexit vote, when British voters elected to leave the European Union, those who stayed calm and didn't overreact did fine. It's always prudent to focus on long-term asset allocation and remain calm."
Spika said active management firms like GuideStone are thought by many to be better suited for volatile markets, which give sub-advisers a better chance to identify companies that are undervalued.
GuideStone President O.S. Hawkins echoed Spika's assessment.
"Market fluctuations will always occur, but long-term retirement investors must keep their eye focused on their goals and not short-term fluctuations," Hawkins said.
"Focus on diversification, your objectives and your time horizon, the time between now and when you need your money, and less on the day-to-day headlines and market swings," Hawkins counseled.
When dealing with a period of volatility, GuideStone suggests four principles for investors to keep in mind:
Spika said the performance of a retirement account moving forward will be determined based on results of the financial markets in the future, not the past. "Selling today cannot avoid yesterday's market loss, and likewise, buying today does not capture yesterday's performance," he pointed out.
"2018 may be choppy for investors," Spika said, "but long-term investors should focus on their long-term objectives and not on the minute-by-minute headlines scrolling by. Even with higher volatility a possibility, we do not expect a bear market or a recession, just more volatility in the coming months."
GuideStone participants can receive help with their long-term investment allocations by accessing the Investment Recommendation tool within MyGuideStone or by accessing the resources on the Retirement Planning and Guidance page.
Roy Hayhurst is director of denominational and public relations services for GuideStone Financial Resources of the Southern Baptist Convention.