Buckle Up, It’s Getting Turbulent!

State College, PA – I learned aviation slang for turbulence is called dirty air. What has been going on in the market is like dirty air? Recently we have seen the wildest ride on the Dow Jones industrial average in 17 years. Dow Jones is a representation of how large companies are doing and we saw many extreme two day swings. This year, so far, the areas of the markets that are UP to date include: some Fixed Short-Term instruments, US Large companies, and Emerging Markets, while US Small companies and Developed International are DOWN.

A couple of things we can draw from market volatility:

One, it proves, what academics tout, the market has a 2/3rds bias. In 2011 it was down, the last two years, 2012 and 2013, have been up, and perhaps 2014 will finish as a down year. That’s, yet to be seen.

Two, it creates opportunities for those disciplined investors. Prudence dictates we sell high. Recent weeks are a dramatic example of why we rebalance portfolios religiously, taking advantage of the swings in the marketplace and putting dis-similar price movement to work for benefit. We sell what asset classes are up, down to a target, take the gain and then buy asset classes that are down, up to target. Doing this, the academics have proven, you are always buying low and selling high. Rebalancing is one of the three basic pillars of investing own equities, diversify, and rebalance. It’s weeks like the last couple, that we appreciate down the road, when you look at the balance of our accounts. You see, you don’t need to worry about the volatility of the market, and timing the ups and downs. That is if you own the entire market place, rebalance on a regular basis, and let the market do what it does.

When the market is rocky or in the red is the time we need to be most vigilant because when the market starts to be volatile is when the money demons start to creep up. The main reason for rebalancing is to manage your risk so that you keep the same standard deviation (risk or sleep factor) as when you first purchased your portfolio. We want returns, but we also want to manage the downside loss potential at any given time. The market is like going up a flight of stairs, playing with the yo-yo, it goes up-and-down, but it always reaches new highs historically.

About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry