October stock market volatility is here, but you shouldn’t start losing sleep over it, at least not yet. The Dow Jones Industrial Average already lost 3.1 percent so far this quarter in just two days of trading. October has a long history of stock market volatility. Tax Loss harvesting is often the main culprit of that extra volatility in the market.
Investors often realize their losses on particular securities to offset taxes on both gains and income. So, October brings more sellers, who want to harvest, than buyers. High-frequency traders and Robo-advisors exacerbate the volatility because the computer is the one deciding to sell and harvest.
Should I Be Concerned?
Yes and no! The Dow Jones is the most-watched stock index in the world, but it only tracks the performance of 30 large publicly-traded companies. According to the Wall Street Journal, there are 3,671 public-traded companies in the United States of America.
The Russell 3000 Index, which tracks 3,000 publicly traded companies, might tell an investor more about her 401 (k) than the Dow Jones. The Russell 3000 index closed 1.69 percent down yesterday. It does appear that volatility wasn’t discriminatory.
Unless you plan to retire soon, you shouldn’t check or worry about your retirement accounts. Volatility is baked into the stock market. The only way to avoid the volatility is to avoid the stock market. Investing in the stock market is one of the best ways to create wealth; you need exposure.
Is It More Than Just October Being October?
It can be October being October; however, there are many red flags–low manufacturing jobs, the president trade war with China, and the impeachment inquiry. Those red flags combined with tax-loss harvesting can bring extreme volatility to the market or flash crashes, or both.
Today might be a good time to sit with your advisor and decide if you need to reallocate your portfolio, which is making sure that your retirement savings are not concentrated into one asset class. The global economy is more intertwined now than before, but a well-diversified and allocated portfolio can protect against idiosyncratic risk.
*Image credit:
(Richard Drew/AP)
