Is the world coming to an end? If the markets are any indication then start say goodbye to your loved ones. August was definitely a wake up call reminding us the markets do not go up in a straight line. But with these corrections come opportunities! The opportunity to tax loss harvest and capture some valuable capital losses to offset both current and future gains. And the opportunity for savers to purchase more stocks at a discount. What's interesting is that a stock market correction is defined as a 10% pullback in stock prices. Only emerging markets has met that mark year-to-date. Yes, it's a great time to be investing even if it doesn't seem that way.
So how bad is it? Well, let's take a look at the numbers. All of the US stock categories were down between 5% and 7%. US large cap stocks, core and value, were down (6.46%) and (6.16%), respectively. US small cap stocks actually did a little better albeit still down, small cap value off (5.21%) and small cap core off (5.99%)
International stocks performed worse, with most of the fingers pointed at China's slowing economy and stock market correction. International large cap stocks both core and value were down about 8%. International small cap stocks, both core and value, were down about 4.5%. Note, international small cap stocks are still up year-to-date.
Finally, emerging markets were down 9.2% in August and are down 14.4% year-to-date. That's quite a move in one month. It shows how quickly stocks can change and why diversification is so important.
Short-term bonds did exactly as they were supposed to do, up just under 1% year-to-date. So, if your portfolio is aligned properly based on your goals, the bond allocation part of your portfolio is still there, ready for whatever your cash needs are. If you haven't planned ahead for this correction it probably hurts more than it needs to.
Jim, what do you have to say about these crazy markets?
"The only people who need to be panicking in this sort of market are the ones who didn't plan properly. The way I see it there are three type of investors. First, we have the net savers who are years away from retirement. This group should be jumping for joy. This is an excellent opportunity to buy more with your money. With a long term time horizon they know the market will be higher in the years to come. Second are investors close to or in retirement. As long as they planned ahead, did the math, and understand their cash flow needs they can confidently get through a downturn like this. Their portfolio is properly allocated so they don't have to sell stocks to fund their retirement, they can be "patient sellers" and wait out this correction whether it lasts another week or several years. Third and finally is the investors who didn't plan ahead. They are scared of losing their money and retirement so they are either thinking about selling out or have already sold out. This is the only group I feel bad for. With a little planning they could avoid the panic that comes with these type of ordinary and common corrections, and hopefully saved some of their money too."
That's one to write down and keep in your breast pocket. Thank you Jim.
Here's the monthly return numbers with stock charts:
August Returns By Asset Class
US Large Cap Core: (6.46%)
US Large Cap Value: (6.16%)
US Small Cap Core: (5.99%)
US Small Cap Value: (5.21%)
International Large Core: (7.97%)
International Large Value: (8.06%)
International Small Core: (4.53%)
International Small Value: (4.73%)
Emerging Markets: (9.20%)
Short Term Bonds: 0.07%