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How Volatile Has 2008 Really Been?

2008 has been witness to a great deal of volatility in the markets but is it unprecedented by historical standards?  As you will see from the chart below, for the period 1928-2007, the S&P 500 had daily moves of more or less than 1% sixty times each year on average.  Further, over this same timeframe, the S&P 500 experienced daily moves of more or less than 2% sixteen times each year on average.  So far in 2008, as of the close of business on December 19, 2008, the S&P 500 has already experienced daily moves of more or less than 1% one hundred and thirty one times (i.e. more than twice the historical average from 1928-2007) and moves of more or less than 2% seventy times (i.e. more than four times the historical average from 1928-2007).

S&P 500 Volatility Summary, 1928-2007

 

Sources:  Global Financial Data and Thomson Financial Datastream for the period 1928 – 2007.  The S&P 500 is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general.  You cannot invest directly in an index.  Past performance is not an indication of future results.

S&P 500 Volatility Summary, 2008 Year-to-Date (“YTD”) through 12/19/08

 

Source:  Thomson Reuters for the period 1/2/08 – 12/19/08.  The S&P 500 is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general.  You cannot invest directly in an index.  Past performance is not an indication of future results.

So, yes, 2008 has been a year of great volatility, with daily moves that have been both sharp and dramatic, even according to historical standards.  This does not necessarily mean that one should abandon their long-term perspective, if appropriate, though if you have a strategic asset allocation in place that is re-balanced periodically as needed and contains a degree of non-correlated asset classes (i.e. asset classes that do not all move in the same direction with market moves). 

Asset allocation does not ensure a profit or protection against a loss. Please note that asset allocation may not be appropriate for all investors.