The equity markets have been very volatile over the past two days as the S&P 500 sunk 3.5% for its worst two day drop this year. While stocks have bounced back today they are likely to continue to remain very volatile over the remainder of the year as the issues in Europe and the fiscal cliff move to the forefront of investors’ minds. There will likely be much back and forth and political wrangling over how the government should handle the spending cuts and tax increases that are set to kick in on January 1st similar to what occurred two summers ago. We fully expect that your bond holding will provide the stability your portfolio needs just as they did previously – despite the downgrade of US Treasuries two summers ago.
While we remain optimistic that some compromise will be reached, it is not a given. Thus the near term will continue to be choppy. In these situations where stocks are taking wild daily swings it is important to take a step back and remember why you’re invested in stocks to begin with. The goal is not to see a quick bounce in market values over a week or month – or even a year. Investing in stock is an allocation for the longer term. The holdings should be evaluated over periods of five to ten years. While stocks can certainly have down quarters and years we have full confidence that by maintaining a disciplined asset allocation to stocks investors will see growth over these longer periods. If you can ignore the noise in the markets over the day to day you can position your portfolio to be successful over the long term.