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Money Minute
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Causes of Short Term Volatility
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Occasionally, markets have rough starts in some years, but before we conclude that the sky is falling, it helps to look back.

Occasionally, markets have rough starts in some years, but before we conclude that the sky is falling, it helps to look back. In both 2003 and 2009, we experienced poor stock performance in January, only to be followed by significant gains for each of those years. As you can see, January performance didn’t mean the race was over, and it wasn’t a particularly good indicator of how the race would go.

Short term market volatility is inevitable and can be caused by events that don’t have anything to do with the underlying long-term value of the company stock you’re invested in. For example, day traders and powerful computer algorithms can cause short term stock fluctuations. Likewise, speculators who bet a stock was going to fall, may have to buy back the stock if they realize they were wrong.

Instead of focusing on the short-term, think about your long-term investing plan. A good plan will help you ride out the ups and downs of the market. Years of investing experience shows that it’s better to stay the course and invest regularly, rather than make knee-jerk decisions based on short-term noise.

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