March 23 2021
By: Michael Brodsky, CEO
Since 2000, the U.S. financial market has experienced several major volatility events, including the bursting of the Internet bubble in 2000, the Global Financial Crisis of 2008 and 2009, Europe’s sovereign debt crisis of 2010 that roiled global markets, and the COVID-19 Pandemic that began in 2020. An observant investor would likely conclude that the stock market experiences corrections every handful of years. Indeed, the general consensus among informed investors is that every five years or so forms a market cycle. During that period, a bull market is born, and dies, and is born again.
While each correction and advance is usually different, they all typically have this in common: volatility shocks often surprise and harm many investors. In totality, the successive corrections and crises have helped deepen awareness that volatility is something that investors can let happen, or something that they can do something about.
As the chart below indicates, volatility is generally a permanent part of the stock market. Since December 1920, the stock market, as represented by the Dow Jones Industrial Average, has advanced in a volatile fashion. Yes, stock prices rise over time, but usually amidst waves of volatility