A couple of the headlines I’ve seen this afternoon:

While neither of these Twitter posts are technically incorrect, they are presented without proper context.  On a percentage basis, today’s ~4.6% drop in the Dow doesn’t even come close to rating in the top 10 days.  In fact, todays percentage loss isn’t even in the top 100 of percentage losing days for the Dow.

Of course, that doesn’t make the losses any more pleasant but it does illuminate the fact that these market drawdowns are fairly “normal”.  What is not normal is the virtual lack of volatility in the markets over the last ~2years +.  Drawdowns of 5-10% are present more often than not even in bull markets.  Only time will tell if this is just a bump in the road or a longer term market correction. People (and programmed algorithms) trade for a variety of reasons.  Political uncertainty, rising interest rates, rising wages and/or programmed selling could all be the culprits for the last week of drawdown.  Only hindsight makes these reasons more clear.

Finally, this volatility provides a good platform to remind clients that the best way to plan is to do just that: develop a financial plan and stick with it.  Markets will rise and fall as they always have but if an investor understands that risk and market fluctuations are in line with their financial plan they are more likely to stick with it through the drawdowns.