A character in a Robert Frost poem wisely remarked, “The best way out is always through.” Of course, he wasn’t talking about market volatility, but he very well could have been.
Whether you’re new to investing or have years of experience under your belt, it’s inevitable: You’ll experience market volatility eventually—it’s just a matter of when and for how long. You can’t avoid it; you can only persevere.
Picture it: August 2007. You have a $50,000 investment that tracks the S&P 500 Index. By February 2009, the same investment’s now worth $25,000—half its original value. What would you do (or did you do) during this two-year downturn?
Fast-forward to April 2011. It’s been two years since the market bottomed out. If you stayed the course during the downturn, your original investment (which was worth $50,000 in 2007 and $25,000 in 2009) is worth $50,000 again.
Hindsight is always 20/20
This is a true-to-life example based on actual market data compiled from 2007 to 2011, the most volatile time in the stock market since the Great Depression. While we can glean only limited insight from this period of time—after all, past performance doesn’t predict future returns—we can take comfort in one thing: The markets are resilient.
As a financial advisor, I know the pitfalls of changing my portfolio based on short-term events. But as an investor, I know how hard it is to “tune out the noise” when headlines about market volatility dominate every website and news channel.
Most investors, myself included, naturally want to protect their assets in market downturns and get the most bang for their buck during market upswings. These feelings don’t change your asset allocation or jeopardize your long-term goals … but acting on them does.
Here’s my approach to making it through market volatility: First, I recognize how market volatility affects me. I accept how unsettled I feel, and then I force myself to move on. I distract myself by watching HGTV, challenging my kids to a game of Life, or losing myself in a good book. If this line of defense falters, I trust my rational side to prevail, as I trust the resiliency of the markets that rebounded after the 2007–2009 downturn.
Help write my next blog post
How do you get through market volatility? Please share what works (or doesn’t work) for you in the comment section below. I plan to feature your tips in my next blog post.
The past is behind us, but the tips we have for getting through bouts of market volatility are evergreen. We can’t escape market volatility. But with the right mindset, we can make it through.
- All investing is subject to risk, including the loss of the money you invest.
- There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.