What to keep in mind:
- 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.
- Markets trend upward. 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 an 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," because unless you buy back in 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.*
Tips for thriving in volatility:
- Understand your strategy. Your strategy was designed for your specific goals, timeline, and risk tolerance.
- 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.
- 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
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 2021 was 9.9%. If all you missed was the best day in each year during that time period, your return would’ve dropped to 6.1%. Miss the best two days of each year, and you were up less than 3% a year. Taking it to the extreme, if you missed the best 20 days of each year, you’d be down 24.4% per year!
* 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. The S&P 500 is generally considered representative of the U.S. stock market. Past performance is no guarantee of future results.
Source: LPL Research, LPL Research, FactSet 4/29/22