The Right Perspective on Market Volatility
The first few weeks of 2016 have proven that our equity markets can be a volatile place to invest. The major stock market indexes have reached the correction level already this year which is defined as a 10% decline in the index from its most recent high. Many investors are concerned about their portfolios today. Our fund management partner, Cornerstone Management has highlighted for us a few reasons behind the recent market volatility.
- Concerns around China's economy continue to be a major focus as they were at times in 2015.
- Crude oil prices have continued to fall from $37 per barrel at the end of 2015 to a current trading level below $30 per barrel in reaction to global demand.
- Fresh geopolitical concerns in North Korea and Iran have weighed heavy on world markets.
- The recent change of monetary policy from lower interest rates to a move toward higher rates has instilled more uncertainty within equity markets.
As Christian believers with a long term investment view, where should our understanding and perspective in all of this be found? History has proven that there will always be events and circumstances in our world that contribute to market volatility. So, how should we deal with times such as these from a biblical point of view?
- Focus on objectives, not emotions, which can lead to impulsive decisions. Proverbs 21:5 states "The plans of the diligent lead to profit as surely as haste leads to poverty." We can be at peace knowing that hasty decisions are not as prudent as being diligent in our approach to investing, even if the world around us is reacting to the changing economic environment.
- Focus on the long term. "A wise man thinks ahead; a fool doesn't, and even brags about it!" There is wisdom in developing a plan for the future and sticking with it!
- Stay diversified. Ecclesiastes 11:2 says to "Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land"
- Maintain realistic expectations about the markets. Financial markets will fluctuate wildly in the short term, but historically they have always returned to profitability. Proverbs 24:3-4 gives us the perspective that "Through wisdom a house is built, and by understanding it is established; by knowledge the rooms are filled with all precious and pleasant riches."
At MB Foundation we believe a healthy perspective on our finances is found in 1 Timothy 6:17.
"Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment."
May we all be encouraged to view recent events from a biblical perspective and keep our hope squarely on God.