When Faced With Market Volatility, Find the Silver Lining

Empyrion Wealth-Silver Lining

In January, Fidelity Investments released its analysis of the retirement landscape for the fourth quarter of 2018. Hidden behind data and statistics on savings trends was some incredible news: Last summer, there were over a million people with more than $1 million in their 401(k) accounts.

And then came December, in which nearly 20% of the value of the S&P 500 was wiped out; markets overseas also grappled with larger losses. This dip in the market dropped the number of 401(k) millionaires by 28% in the fourth quarter of 2018.

What should we take away from this event? Is it proof that we should avoid investing in stocks altogether, especially when faced with market volatility?

No — it’s actually the opposite. The reason stocks have higher expected returns compared to more conservative investments is because they require you to take on additional risk. This is precisely why there were so many 401(k) millionaires in the first place.

Market volatility is normal, but it still keeps many investors from trusting their retirement savings to stocks. On the other hand, the investors who are able to stay resilient and weather volatility are often rewarded with higher long-term returns.

Imagine a world in which stocks provided a tranquil, low-risk/low-return pattern over the long term. Investors would receive modest overall returns, because returns are a direct function of risk. In this low-risk, hypothetical world, it’s likely that many investors would never achieve their retirement goals.

Of course, those investors who desire less risk can find it in markets like Treasury bonds, which offer a modest return with little risk and a high expectation of delivering on the nominal returns they promise. But Treasuries are not completely free of risk, either; from a historical perspective, the 10-year government bond market has experienced declines of as much as 5%. And chances are, few of the 401(k) millionaires referenced in Fidelity’s report were heavily invested in Treasuries during their accumulation periods.

The point is that risk is a normal aspect of investing in the financial markets. There’s no denying that it can be difficult to stomach periods of significant market volatility — and there is no crystal ball to tell us when those periods will occur. At Empyrion, we believe that your best defense against market ups and downs is a disciplined, diversified investment philosophy you can rely on, one that factors in a long-term horizon and matches your tolerance for risk at various stages of your life.

If you have questions about your investment strategy or want to talk more about your risk tolerance, we encourage you to contact us.

Stay Diversified, Stay Your Course!

Empyrion Wealth Management (“Empyrion”) is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Information pertaining to Empyrion’s advisory operations, services and fees is set forth in Empyrion’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Empyrion. The information contained in any third-party resource cited herein is not owned or controlled by Empyrion, and Empyrion does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Empyrion of the third party or any of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner or investment advisor.

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