What caused the substantial increase in market volatility over the past week?
It appears that investors were spooked by the economic slowdown in China, but regardless of the cause, the effect caused a 10% drop in stock prices globally. These declines are never fun to experience but they are a natural and somewhat common occurrence in stock markets.
In the past five decades such declines have occurred on average about once every year and a half. Since we haven’t had a correction like this since 2011 it might seem abnormal, but what is actually abnormal is that we have gone for almost four years without one.
The timing, cause, severity and duration of declines cannot be accurately predicted, so we always recommend portfolios that are broadly diversified by asset class, geography and investment strategy. While market declines are worrisome, they can also provide excellent investment opportunities and should be viewed by long-term investors as nothing but noise.
