Home » MBJ FEATURE » Long-term view always the best, particularly in volatile market

Long-term view always the best, particularly in volatile market


As the markets bounce up and down, Mississippians may start to feel anxious, but those in the know are confident about the long-term future of the economy.

Ernie George, certified financial planner, of Starkville’s E.T. George Investment Management, a fee-only registered investment advisory firm, said these markets can affect large Mississippi businesses such as BancorpSouth or Sanderson Farms because their portfolios are owned by mutual funds. This in turn impacts people who participate in a 401(k) or 529 plans that might include these companies. Retirement and education investment accounts that have equities can be susceptible to the volatility of the ups and downs.

However, it’s not necessarily a negative impact. Declines provide the opportunity to buy companies for less.  George said one reason people get nervous is that the negative moments stand out more than the positive ones.

“Our minds tend to focus on what’s happened recently,” he said. “And we remember the pain of declines more. Many people remember the 22 percent decline in 1987 and the 50 percent declines after the tech boom and recent 2008 decline.”

More important, the changes aren’t unusual, but the recent behavior of the markets have drawn special attention because of the speed of these changes. George said the news cycle affects the stock market, but only in the short term. Generally, predictions by media outlets either fail to come to fruition or are counteracted by another event.

Another reason for the rapid changes can be attributed to technology.

“A large percentage of the trading on the stock exchange is done by algorithms on computers, and it’s happening at fractions of a second,” he said.

However, despite days with 50 percent drops, George said the outlook is much more stable and positive when you look at the market over a longer period of time. For the past 12 months, the market is up approximately 10 percent.

When looking at the past five years, the markets have tended to end the year with double digit returns despite low points throughout the year. In 2017, the market hit a low when it was down 3 percent, but ended the year up 19 percent. In 2014, the low point was down 7 percent, but still ended the year at 11 percent.

“This shows volatility is more normal than not,” he said. “The shorter the time frame, the more volatile it seems.”

He said history shows that the market typically has a decrease of about 5 percent three times a year, a decrease of about 10 percent once a year and a decrease of 20 percent or more every four or five years.

George said the current state of the market gives investors the opportunity to diversify portfolios and change stocks to bonds or cash, which tend to give investors more comfort. He also said investors should focus on the future, whether it’s retirement or college savings accounts.

“There’s too much emphasis on the short term by institutions,” he said.

For example, if a couple wants to save more for their grandchildren’s college costs, George said they should take more risks in the early years, but as the child gets closer to college age, they should pivot to more stable investments.

The recent drops should overshadow the general trend upward in the strength of the market. By shifting to a longer-term perspective, investors can reap the rewards of a resilient economy over time.


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