Are The Markets Especially Volatile This Year?

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Although it may feel like the markets are just bouncing around like crazy this year, Vanguard shares some data that shows that the markets are actually performing in line with history.

A common definition of volatile day is one where the market index moves at least 1% up or down. For example, yesterday all three major market indexes dropped between 1.3 and 1.6%, and it was considered a “pounding”. But, as you can see in the chart below, historically about a quarter of all days are volatile.


In the past few years, we’ve been spoiled by a period of relatively low volatility, and now we’re simply reverting back towards the mean. It’s all part of owning stocks, and I don’t see any reason to make any changes if you already have a long-term plan.

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  1. The difference is that we have had a series of drops in a very short time, all supposedly related to one cause.

    We’ve had a drop of 8.1% in the DJIA since July 19th. That’s not volatility, that’s sinking like a rock.


  2. I sure hope the horrific bear market of 2002-2003 isn’t considered the mean! Also, 2007 is only 3/5th’s over and is already at 15% volatility.

  3. I predict the economy will crash like it did in 1929 around 2011, when all those baby boomers decide to take their money out of the markets and “retire”.

    This will be fun…

  4. Heres the way I see it – The cream sits at the top. The top 10% of any major index is basically propped up by the fluffy, flighty, trendy short term traders who are all out to beat the market. They are always ready to buy buy buy when the market is going up but also the first to jump ship when things turn south. They thing they are being clever and can time everything just right.

    I think we’re in the phase now where most of these types of people have already pulled out. Now the rest of us just sit by calmly to ride out the bear, and hopefully cash in during the process. By continuing to invest at your normal intervals even when the market is in a downward trend you are locking in profits when the situation reverses again.

    And you better believe that when the market does start to change course the same people will come running right back to buoy things up again at near the same pace that it came down. Most of them won’t benefit from this practice…. but you will! If you’ve been steadily investing during the bear turn that is.

  5. Jonathan and Wes make good points.

    One thing that may have changed is that you may have just found out your portfolio is holding subprime-related debt; the whole repackaging of mortgages into securities and derivatives is pretty new to the market. I read that if the performance of your bond fund during Feb, March, and July was down, that’s a sign that your bond funds hold subprime-related debt, and you may want to bail.

    Jonathan’s recent posts about holding TIPS, treasury funds or cash for the bond fund portion of the portfolio are very relevant…. I only wish that all 401(k) plans were so enlightened.

  6. I have to agree with Wes’s comment about the market sinking like a rock!

    I am extremely skeptical about this particular drop. Like most Americans will say “market is performing along its correction course and everything is okay,” frankly, no it is not. This is a major credit meltdown. Yes sub-prime is one factor but there are several complex issues dictating this market collapse. The train-wreck has just begun and it is only going to get worse.

    Most Americans including people on this forum need to read the U.S. Comptroller General’s statement in the Financial Times where he analogizes the current economic and political situation of the United States to that of the Roman Empire.

    How can a country like the U.S. live in such prosperity and rake up huge deficits. The two do not make sense to me. There is a false sense of security most Americans have that just because they are maxing out their IRA’s, they are going to be safe.

    I read yesterday in Barron’s that Money-Market based accounts are on the verge of defaulting.

    People, talk to some of your friends overseas and get a reality check.

  7. I’m no financial expert, but “How can a country like the U.S. live in such prosperity and rake up huge deficits” seems a bit slanted. It’s not like the US is the only market that’s been taking a beating lately; FTSEs’ Ex-US index has basically matched the US drop for drop. [read: sucks because I hold lots of ex-us 🙁 ]

    As Jonathan points out, we’ve enjoyed a lot of tranquility the past few years, which in itself is abnormal. Having volatility return, even all at once, doesn’t mean “OMG We’re All Going to DIE” 🙂 If the trend continues for more than a couple more months, and our volatility _exceeds_ past trends significantly, then we can start to talk about having a serious problem.

  8. Dear Christopher Wright,

    Read my entry again. I never said we are going to die, but am reiterating for you one more time: We are rightfully being punished and going to be punished for our foolish decisions. The train wreck has just begun.

    Further, when was the last time you checked numbers on the U.S. deficit? Are you reading what is happening to Countrywide Financial, the country’s largest mortgage lender?

    You have to be ignorant if you don’t think that U.S. Federal Reserve pumping $17 billion into the financial market is nothing. Once again, it will always be the Americans who think everything is okay!

    No, the world will not end but stupid decisions will have punishing consequences for all of us.

  9. As I told you recently, my retirement account was as high as $208K sometime last month, then sunk to $200K, then ran back up to $205K (I was like great!), and now has sunk to a low of $198 (ouch!!). I get so exasperated watching the thing go up and down. And what gets me annoyed really (anger is blocked wish, right?), is that somewhere someone is making money on this volatility. If I cashed out at $208K (if that was possible), and waited, then jumped back in and made another $5K (approximately), on the 1st upswing, then cashed out again and waited — I would have made $13K in this time, instead of losing $10K.

    But that’s for more risky investors — I’m a chicken. And my chicken like behavior has gotten me about a 2.5% return a year over the past 10 years — pretty pathetic. And I’ve always invested in stocks. I guess I really need help.

  10. I see this as a major correction and predict the market will sink back to below 12,000. Overseas markets are sinking too. I agree with Jonathan that if u have a long term plan, i wouldn’t stick with it but I would say this might be a time to sell some of ur profit, wait a bit and then re-buy cheap as well as put some more in. buy cheap people!

  11. “I already have a long-term plan.” Isn’t that the second stage in the Housing Market cycle picture that Jonathan had a few day ago.

  12. Mimi,

    You can ask your financial professional about an annuity (CAN BE BOUGHT WITH QUALIFIED MONEY) which would allow you to grab those gains….I could provide you with some basic info (or if you are in the NYC area we could talk more in depth)

    Let me Know

  13. Ted Valentine says

    mimi: If you’ve made 2.5% per year for the past 10 years, that’s your problem. You’re trading too much and chasing performance. Through 2006, the 10 year annualized return on the S&P is 8.4% and the total stock market is 8.6% per year. Even a managed balanced fund like STAR did 9.19% the past 10 years annualized.

    Here’s your help: Go read a book like Malkiel’s Random Guide to Investing or the Boglehead’s Guide to Investing. They are both very easy to read. Set your allocation and leave it alone. Then stop watching the market every day thinking you can beat the system. Enjoy your life.

  14. I think it is important to stick with your long term plan. I’ve did an impluse sell last month and ended up rebuy in higher price.

    A big lesson learned. I guess its good ideas sometimes not to follow the market daily, or check your porfolio daily so much. 🙂

  15. the more you pay attention, the worse you will do.
    buy at regular intervals, hold, and keep yout terget allocation in place. if one part of your allocation is getting hammered (euities at present) , and dip out of your allocation range, shift money to make the mix even back out (or better yet put your new purchases towards the battered sectors). down markets like this one are good news for those who keep a close eye on their allocation targets, and who pursue passive investing strategies. rearview mirror chasers get crushed by this kind of market. those who are jumping into bonds right now and running from stocks will reverse course when equities rally – and the result will be poor returns. as the old saying goes, the best time to buy is when blood is running in the streets – and the blood is definitely running right now. so smile, and stick to your strategy of allocations among equities and bonds and ignore the noise. market timing is a losing proposition. maintaing stable allocation mix is a winning one.

  16. Thanks Evan, and Ted. I may contact you Evan, but all my money is in TIAA-CREF and is spread throughout different funds. I don’t actually trade at all. And I almost never changed my allocation. This was my recipe for disaster:

    When I started contributing about 10 years ago, I put all my money into the stock funds (stocks were during well then), and then the market died. I put money into stocks for the first 5 years, and it actually lost money all along (these are TIAA-CREF managed stock funds, and not the riskiest ones either). Anyway, at that point, I switched and put all of my new money (I never cashed out the stocks) into their Real Estate fund. That did phenomenonally well and erased some the bad years with my stock funds (which I still have all of). About 2 years ago, I switched my new money (never cashing out the real estate) back into stocks, and it looked pretty good, until now.

    But I should have let my new money continue in the Real Estate fund — that thing is still making money (I thought it couldn’t go on forever) and the stock funds, once again, are becoming a disappointment.

    But I don’t actually do any short term trading, just wanted to clear that up. This has been my plan (which has made logical sense to me at each juncture), and it hasn’t worked out all. So I am definitely in the market for other ideas.

  17. Don’t be a wuss, invest for the long term. I plan on continuing my plan of evenly investing to max out my 401k/Roth IRA into 100% stocks. In fact I don’t even know why I look at the stocks anymore…

  18. Mimi, it sounds like you are still chasing performance, even though you’re not constantly buying and selling. Why stop buying stock after the burst of tech bubble? It would make more sense to buy low than buy high. You need an allocation catered to your level of tolerance for risk and stick to it.

  19. I think it would be more interesting to see a chart of volatility over 10-15 years. 2002 was a bad year for the market due to the dot com boom/bust and since then the markets went up. What would be interesting to see over 15 years is how it goes up and down with the market conditions.

  20. mimi- Something doesn’t seem right about your return based on your investment choices. Perhaps you could share how you arrived at that 2.5% number. Unless you are including a spouse or catchup contributions, you would’ve been limited to $125K in contributions over the last ten years (1997-2006). If it’s worth ~$200K now, I’m guessing you are getting a better annual return than you think…probably closer to the ~8% S&P return. Or you have a heckuva good employer match, in which case, you can’t complain too badly. 😉

  21. The mean is listed on the right, for the 37 years between 1970-2007.

    The market always has worries, despite how it may seem there is always something to worry about. People misjudging the credit risk of a lot of things is the current worry. 5 years from now there will be fresh worries.

    Consumer debt is definitely an issue that needs to be solved to maintain our own standard of living, but as a % of GDP I don’t see the sky falling.

    That’s just my opinion, nobody knows the future.

  22. I agree with Shak’s comments. The only way the huge trade deficit can be corrected is by the dollar declining sharply against other currencies. Quite a few folks agrees the dollar is overvalued and it may be sooner than you think

  23. mimi – please do not try to purchase an annuity outside of TIAA-CREF (who sells inexpensive annuities alongside of mutual funds). Annuities are hard to understand, hard to get out of, expensive, etc. etc. etc. They MAY be an acceptable investment for very young, very high income people who have maxed out their 401(k)’s, make too much income for a ROTH, and are looking to invest non-qualified dollars (i.e. dollars OUTSIDE your 401(k)). But it sounds like you don’t really understand yet how to do asset allocation (what the other posters are recommending; investing 100% in one fund is NOT asset allocation) yet so I don’t think you are ready to fully evaluate something as complicated as an annuity.

    Are you sure that you are invested in individual mutual funds in TIAA-CREF and not a variable annuity that is linked to the stock and real estate indexes you described? Do your plan documents say anything about “surrender charges”, “guaranteed minimum return”, “death benefit” or “living benefit”? Annuties are more expensive because you are paying for insurance features, which can hold your returns down.

  24. Steve Austin says

    The market is a beautiful thing. Eventually reality catches up with psychology, shoe-string tackles it, and pummels it for a few rounds before psychology gets back on its feet and starts running again.

    Everything that is happening now, price-action-wise, is healthy. A 10-30% correction would sound about right to me, but won’t be surprised if it ends up being more or less than that. It’s great to see the volatility back in the market, shakes all the jittery players out of the game.

    Been a lot of greed over recent years, now it’s time for some complementary fear.

    I don’t follow macro issues too much: how are the trade and budget deficits trending lately?

  25. I would have to agree with you all that maybe I’ve been chasing performance a little. But I did wait out the stock market for almost 4 years (it made money the first year and downward spiraled the next 4). I didn’t move my money immediately when the market was dying. But then after 5 years of horrible returns, I had to do something, so I switched to the Real Estate fund.

    Mike, wow, that was so sharp! Yes indeed, I have very generous employer match. I have been contributing about $10K a year myself with my employer matching 10% of my salary (it has gone from the 50s to the 80s during this time). If it wasn’t for them, my situation would be even worse. You see, I am really that bad at investing! ;>

    Heather, no, I’ve never put my money in a TIAA-CREF annuity (I also thought those are for when you are retiring — and you want annual income). I am invested in CREF Stock, Growth and Equity Index Funds and TIAA Real Estate. I also own some bond funds, but less then $25K. That inflation-linked bond fund is very mysterious to me though anyway — I have witnessed very obvious inflation in the last 10 years and yet this fund barely moved. But at least it never tanked like the stocks.

    Thank you all so much for your input — I’m beginning to see that my assets aren’t properly allocated (and maybe I have been chasing performance and that’s my problem). I can probably contact TIAA-CREF and ask them to help me balance it correctly so that I can get better returns. I

  26. Mimi,
    I have have a similar problem w/ TIAA-CREF funds. Then I went to the following website and learned that it is almost impossible to get proper diversification because the options are so limited.
    The website is

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