Over the next week or so, you are going to receive your August statement from your investments. This is a heads up to you that you should not be surprised if your account has gone south. August was not a very good month in the market. In fact, the Dow Jones Industrial Average had its worst August in 17 years. The Dow was down a little over six percent which means it was the worst performing month of the Dow in more than five years. In fact it was the sixth worst monthly performance of the Dow.
Overall, the broader U.S. markets also suffered similar declines. The S&P 500 fell a little over six percent in August, its worst monthly performance in more than three years. The NASDAQ, which is very tech heavy, also showed significant decline. In August, the NASDAQ was down close to seven percent, its worst August performance in 14 years and its worst monthly performance in over three years. The bottom line, August was a very difficult month for investors and you certainly will see it when your statements come over the next week or so.
I would like to be able to tell investors they should ignore August statements because for many investors it will be depressing. After all, for most investors, there will be very little good news on those statements. However, to tell you to ignore a statement would be irresponsible. It is important that if nothing more, you need to review your statement for accuracy. Whenever you receive a statement you need to confirm that the ending balance of the previous statement is the beginning balance of this statement. In addition, you need to confirm contributions and withdrawals. If you’ve put new money into your account, you want to make sure it shows up on your statement. In addition, you need to confirm that if there were any withdrawals, they are ones that you authorized. As investors, it’s our responsibility to review every statement for accuracy. However, that doesn’t mean you have to make any changes in your portfolio.
As I’ve mentioned in the past, many investors are under the mistaken belief that when markets are volatile, as they are now, they need to do something with their portfolio. As difficult as this may sound, when markets are volatile, it’s probably a good time to stay put and not make any moves. The problem is that when markets are volatile and investors make decisions, they are generally fear or greed dictates their decisions and that is not something that investors should do. As I have said many times in the past, fear and greed are the two emotions that kill investors and portfolios. Therefore, my advice as you look at your August statement is not to panic and not to overreact.
Many investors are wondering when the volatility will end. I wish I could tell you but I can’t. My view, it will continue for a while; particularly, because later this month the Federal Reserve will sit down and decide what’s going to happen with interest rates. No matter what they decide, whether to leave interest rates as is or to raise them, the market will react. In addition, the market will continue to be concerned with global growth and the slowdown in China. The bottom line, volatility is going to be the buzzword for a while.
I always believe there is a silver lining to everything and that is why when markets are volatile, particularly when they’re retreating, investors should look for opportunities. Whether it’s investing unproductive cash that you’ve had sitting in the bank or doing a Roth conversion. The bottom line as investors, we should look for opportunities when there is volatility.