That was the headline yesterday morning. Should we care?
Does it ever feel like you hit just every SINGLE. SOLITARY. GODFORSAKEN. RED LIGHT!?!
In your lifetime, you’ve driven across town how many times?
Enough times to know how long it usually takes, right?
And sometimes you get there faster because you see nuthin’ but green.
And sometimes it takes a little longer because you hit all the lights.
Investing is just like that.
We’ve driven across town hundreds of thousands of times.
We know how long it takes on average and we know how long it takes if we hit “all reds” or “all greens”.
You now understand standard deviation.
What’s normal?
The average annual return of the S&P 500 is 10% (and the standard deviation is 15%).
That means when you drive across town (aka invest), you’ll usually get a 10% return.
If you hit all the red lights, you might get -5%. (Boo!)
If you hit all the green lights, you’ll get +20%. (Yay!)
Drive across town 100 times and 70 times you’ll get between a -5% to +20% return.
What’s less normal?
But what if there’s a car wreck… or construction…or something else you could never predict that delays you?
Well, we can calculate that too.
For the crazy, unpredictable stuff, the S&P will return -20% to +35% (or 2 standard deviations).
If you drive across town 100 times, expect 5 trips to be like this.
After yesterday, the S&P 500 is down 11.8% over the last 12 months.
So we’re in one of those 5 out of 100 trips across town.
What can you do about it?
If you’re like me, on those trips, you swear into the traffic “I will NEVER drive across town EVER AGAIN!”
(That’ll show em!)
You may have even tried parking somewhere to wait it out.
If you’ve been there, then you also know that:
1. The next time you need groceries, you’ll be driving across town
2. “Waiting it out” never gets you there any faster
So the only thing you can really do about is turn on some good tunes, dig deep into your patience well, and wait it out.
