Times are good, so why should I worry?
Mike JonesYes, times are looking up, so maybe I can take a break from worrying. Then again, worrying is essentially what I’m paid to do.
For those of you who don’t pay attention to the financial markets on a day to day basis I’ve got news for you: 2017 has been an easy year. Investors in the bond markets have made money. Investors in the stock market have made money. Even investors in alternative investments have profited. It’s not as though we have revisited the roaring 1980s and 90s, but modest returns have been delivered on a steady basis.
In addition to positive returns, financial markets have experienced some of the lowest volatility since 1990. This is the year that the VIX, the popular “fear index” was created. VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility.
Bloomberg Radio reported yesterday that the primary indicator of volatility has averaged less so far this month than in any September since its creation.
Adding to that, the risk index briefly dropped below the level of 9 on an intraday trade in the month of July: a record low. For perspective below you will see a monthly chart of the VIX since its inception. Notice the spike back in 2008, 2009 and compare that to today.
By now you may be wondering, if prices keep edging up and volatility stays low, what is there to worry about? Well…
On any given day external shocks could hit the market and cause a big sell off. And I mean on any given day. This risk always exists. If you are to be an investor you must accept this risk.
Geopolitical events could rapidly deteriorate, which could affect the outlook for profits and interest rates causing markets to slide. This risk must be monitored and appropriate investment decisions made when all relevant data is available.
Worldwide GDP growth could stall. After many years of approximately 2% growth we could find ourselves heading into a recession. It will happen again one day. Markets will sniff this out and once again portfolios should be reevaluated.
At the other extreme growth could accelerate, causing markets to “melt up.” This would create a whole different series of scenarios, mostly positive. Yet again action should be taken to avoid swapping years of return due to one season of spikes.
As you can see, even when investing is boring it is still interesting.
Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Mike Jones is Managing Director / Investment Group of Argent Advisors, Inc. Write to either at 500 East Reynolds Drive, Ruston, LA 71270 or call (318) 251-5800. This newsletter is available via email on a free subscription basis. You can subscribe by clicking here. Direct any questions, comments or suggestions to Byron Moore at email@example.com or to Mike Jones at firstname.lastname@example.org.
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