Market volatility is an inevitable part of investing. If we never had market sell-offs, we wouldn’t have as much opportunity to see returns.
But here’s a question. Are you a thrivalist ? Thrivalists are those who reinvent, re-imagine and inspire in the face of a challenge or adversity.
Let’s talk about what it takes to thrive through market volatility.
Markets trend upward
Consider this: while the past can’t tell us what the future holds, the past 30 years have had upward-moving markets despite recessions. It makes sense that this would continue, since investors see opportunity in undervalued stocks.
Trying to time the markets may not end well. If you sell out of the market during a decrease, you “lock in your loss”. Unless you buy back at just the right time, it can be difficult to recover the amount you lose, and the very best days tend to happen right after the very worst ones. According to LPL Research, there are six examples in the S&P 500 since 1987 of deep declines that were followed within 10 days by big moves to the upside.
Tips for thriving in volatility
First, understand your strategy. Your strategy was designed for your specific goals, timeline, and risk tolerance.
Second, review your needs and goals. This is a great time to determine if your goals and objectives remain the same, or if they’ve shifted, requiring an update to your strategy.
Finally, stick to your strategy. Your strategy was built for your individual time horizon, and sticking to it will position you to work toward your goals.
Why staying invested makes a difference
According to LPL Research, since 1990, there were 23 other events where the markets declined 10% or more. Yet, despite these declines, the annualized return for the S&P 500 Index from 1990 to 2019 was 7.7%.
If all you missed was the best day in each year during that time period, your return would have dropped to 3.9%. Miss the best two days of each year, and you were up less than 1% a year. If you missed the best 20 days of each year, you’d be down 27% per year!
Facing the bear
Do you know what to do if confronted by a bear?
Wilderness experts say to face it down or lay on the ground. The same is true of a bear market. If you run, your odds of coming out unscathed may not be very good. But, facing it down and staying the course could mean you not only survive, but you thrive.
A look back in history shows us that people are incredibly resilient in response to crises. As I said earlier, thrivalists are those who see challenges as an opportunity to reinvent, reimagine, and innovate, and come out better for it on the other side.
Janet Fox is President of ACH Investment Group, Inc., in Raleigh, North Carolina. ACH Investment Group, Inc. and LPL Financial are separately owned entities.
The opinions in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
No strategy assures success or protects against loss. All investing involves risk including loss of principal.
