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Ballard Associates Q3 Economic Insight The Market is Full of Sound and Fury; Signifying Nothing but Normalcy There are many headlines that the media may use to cause investors to focus on what’s wrong with the market. This leads to portfolio withdrawals during volatile markets. Withdrawing on the downside exacerbates the downside impact, meaning you would need additional gains on the upside to recover. Volatility works both ways and 2014 offers a good example: “From September 19 – October 17, the market fell about 7%, but by Halloween it had reversed course and jumped 7%. The same percentage move but in half the time.” (Zacks Investment Management, 15’) In this particular example, investors that sold stock or withdrew funds for fear of further downside volatility ran the risk of getting “whipsawed”, or in other words, would need additional gains on the upside to recover. Figure 1 S&P 500 09'-15'(Zacks Investment Management, 15) 'Indices mentioned are unmanaged and cannot be invested into directly'. The above data shows the markets last 6 years and the periods of drastic volatility are circled in red. Instances of sharp downturn have occurred each year while the bull market pressed on. Retirees are not unfamiliar with these volatile market conditions. It’s a very normal feature of every bull market cycle to date. So what do we do in this situation? If your financial situation allows for it, it makes sense to reduce withdrawals during periods experiencing downside volatility. This may allow an advantage on the potential upside. The chart below shows the market pullback corresponding to the market finish. This shows the impact that withdrawals or sell offs would have on recovering potential gains on the upside. Whether you have been investing for decades or days, the experience of downside volatility is always a tense moment, further amplified if you are at or nearing retirement. Your nest egg is on the line, concern and worry are normal features of the human condition, just as the cause of your stress is a normal feature of the market. To ease this uncertainty, we’d encourage you to mind the data first, because more often than not, the volatility will be short-lived and the market will climb the investor’s wall of worry. Securities Offered Through Representatives of Cambridge Investment Research, Inc., a Broker/Dealer Member FINRA & SIPC. Investment Advisory Services Offered Through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Ballard Associates is not affiliated with Cambridge Investment Research, Inc. 6944 I C30201 I 12/2014