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Market Volatility Breakfast

Blue Summit Wealth Management Hosts Market Volatility Breakfast

Emotions, Expectations, and Economics - 5 things investors can do to navigate volatile markets

By Shane G. Yonston & Judith L. Seid

February 15, 2008

Blue Summit Wealth Management, a national leader in Socially Responsible and Sustainable Financial Services, hosted a breakfast presentation last Friday to address investor concerns over the volatile market.

The event was held at the Mission Valley Crowne Plaza Hotel and featured guest speaker John Lundee of Franklin Funds.

The purpose of the presentation was to educate attendees on the Emotions, Expectations, and Economics of volatile markets.

Many people don't realize that investment decisions are often based on emotion. 1 This is especially acute during volatile periods when investor portfolio values can sometimes post double digit gains or losses in any given day.

Reflecting on a common emotional reaction to volatility, attendees were presented with the costs of attempting to time the market, as illustrated in the following chart:

10 Years Ended December 31, 2006

Period of InvestmentAverage Annual Return of S&P 500 Index2
Stayed Fully Invested8.42%
Missed the 10 Best Days3.42%
Missed the 20 Best Days-0.38%
Missed the 30 Best Days-3.66%
Missed the 40 Best Days-6.41%
From From Five Things You Need to Know to Ride out a Volatile Stock Market, , by Franklin Templeton Investments

The emotional interplay in the decision-making process is what contributes to individuals buying high and selling low, contrary to the number one rule of investing.

Similarly, investor expectations were checked against historical facts regarding volatile markets. For example, given the frequency of bear markets during the last hundred years of US market history, is anyone surprised that we're having a volatile period now, after 5 years of over 12% average annual gains in the S&P 500?

In addition to gaining a perspective that was meant to offer some comfort, investors that attended also left with some practical strategies on navigating these types of markets.

Blue Summit will be hosting a workshop on February 28th regarding Toxic Chemicals, Corporations, and Investor Opportunities.

Investors cannot invest directly in indexes.  The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.