Investors: Fasten your seat belts
Think Wall Street’s volatility can’t make you any more anxious? It can and probably will, according to Geoffrey Gerber of Twin Capital Management, a McMurray firm that manages nearly $2 billion.
Mr. Gerber says that through April, the S&P 500 had risen or fallen more than 1 percent on 38 percent of the trading days this year. In 2017, the index experienced such swings only on 8 days, or 3 percent of the time, he said.
Since January 1957, moves of more than 1 percent have happened about 20 percent of the time, or once a week, Mr. Gerber said. But there are very few “average” years. Most years, volatility strays from that average — either being markedly lower or higher.
After last year’s extremely low volatility, ”It’s not surprising to see this kind of reversion,” he said. “Investor uncertainty has gotten much higher.”
Mr. Gerber said daily S&P 500 moves of more than 1 percent happened 23 times, or 52 percent of trading days, in the first quarter.
He said there were 10 other years that had similarly volatile first quarters. Nine of those years ended up being extremely volatile, so Mr. Gerber won’t be surprised if that happens this year.
“You need more intestinal fortitude if you want to look at your portfolio every day when there’s more volatility,” he said.
Look all you want, but Mr. Gerber says most investors should avoid reacting in a big way.
He cited the market’s performance in 1987, when the market experienced its worst one-day drop — falling 20.5 percent on Oct. 19 of that year. Investors who owned the S&P 500 going into that year and didn’t panic in October earned a 5.2 percent return that year. Others who panicked and sold missed out on those returns, he said.
“Volatility doesn’t necessarily mean you’re going to lose money,” he said. “You want to be very careful about making changes in allocations when markets are very volatile.”
Mr. Gerber recommended that current investors in equities with long-term horizons stay put. Those equity investors who need the use of the funds within a year or so should move into more defensive, less volatile stocks, he said.