4 Pictures for when Markets Start Swinging
/The stock market is cyclical and subject to periods of volatility. While being told to ‘stick with your long-term investment strategy’ is simple advice, it isn’t always easy. I love incorporating these 4 pictures into meetings – here’s why.
#1 - Your emotional response to market volatility is normal.
Nobody is hesitant to invest when the stock market is at record highs (the gold bar). I wish I could say the same about the bottom (the green bar). By the time you tell yourself “this time is different” and swear off the stock market forever – the painful recalibration is likely almost over.
#2 – Being out of the market for just a few days can significantly lower your long-term performance.
We all know someone who sold out of the stock market during the 2007-2008 financial crisis. They sold and perhaps watched the market go down a little further, patting themselves on the back for a well-timed move. The reality is, even if they guessed perfectly on the way down, they didn’t guess perfectly on the way up. The days you are waiting on the sidelines will seriously cost you.
#3 - Build a resilient, well-diversified portfolio to reduce volatility and risk.
Source: Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of February 28, 2023.
We can’t predict which asset classes will outperform in a given year. An asset class that is at the bottom of the chart one year could be at the top the next. Build a portfolio that includes a variety of asset classes and stick with it long-term or until your goals change.
#4 - Recessions are a lot shorter than bull runs. It just doesn’t feel that way.
For the period 4/29/1942 - 12/30/2022, the average bear market lasted 11.3 months with an average cumulative loss of -31.3%. The average bull market lasted 4.4 years with an average cumulative total return of 155.7%. Some periods of volatility that were front-page newsworthy look like tiny blips when you zoom out and put the numbers in perspective.
What pictures and graphs help you make smart investment decisions through periods of volatility?
Send me an email and share your favorite chart.
Originally published 9/2/2015
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.