Investing is one of those endeavors that requires a lot of trust—trust in the long-term return potential of the markets, trust in yourself if you are a DIY investor, or trust in your financial advisor if they manage your investments. Trust is easy to come by in a bull market when everything is looking up. But throw in volatility, and it can be harder to remain disciplined and keep trusting your long-term plan.
You know you must remain invested to allow your money to grow, but have moments when you wonder if you’d be better off moving some of it to cash or safer securities. What should you do?
As financial experts, we want to help, so we’ve put together this list of the top three reasons you should stay invested during volatile markets.
1. Volatility Just Creates Blips
The stock market overall has grown by 3,000 times since 1950, and bear markets have only occurred every fifth year since World War II. So, when you look at the big picture, volatile markets have really just been small blips on a really long climb up.
The initial panic at the beginning of the COVID-19 pandemic serves as a good example of what can happen when individual investors make drastic changes during volatile periods. Vanguard research shows that 86% of self-directed investors who got out of the market between February 19, 2020, and May 31, 2020, not only locked in losses but also missed out on the market rebound.
While that period saw a 34% fall in the S&P 500, it also saw a subsequent 36% rise. Investing in the stock market traditionally has almost always paid off for those who have stayed patient and disciplined even during periods of extreme volatility.
2. There is No Good Time to Time the Market
We get it. When the market continues to go wild after many months, the temptation to try to time the market grows, whether you are more motivated by wanting to limit losses or taking advantage of buying low while you can.
Unfortunately, what happens the majority of the time when investors give into that temptation is that you end up selling low and re-buying at higher prices for an overall big net loss.
Remember all of the cliche sayings:
- Time in the market always beats timing the market.
- Investing is a marathon; not a sprint.
- Play the long game.
- Stay the course.
- Keep your eye on the prize.
These are all cliches for a reason, because they are all true.
3. You Have a Diversified Portfolio for a Reason
Whether the market is currently fluctuating like crazy or not, going completely all-in on one kind of investment is super risky. That is why your portfolio is diversified and balanced to your unique risk level and time horizon at all times. This means you have a mix of investments that won’t all behave the same way when the market declines and your investments make sense for how close to retirement you are and how well your nerves can handle fluctuations.
Better yet, you should have an advisor to manage your portfolio if you don’t already. According to a study by Russell Investments, a financial advisor can increase your returns by 3.75%, and another study by Ramsey Solutions says that 44% of investors who partner with an advisor have $100,000 or more saved for retirement versus just 9% who do it by themselves.
An advisor can also help keep you on track and away from emotional investing decisions when FOMO and panic start to set in during incredibly volatile markets.
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At Platt Wealth Management, we empower our clients to lead their best lives by providing them with the financial expertise they need. This includes supporting you (not just your portfolio) through volatile markets. Of course, we are always working to reposition your portfolio to capture the upside in any market, but we are here to help put your mind at ease and guide you when the financial markets aren’t on the upward trend.
If you are a current client and are concerned about today’s market conditions, we encourage you to reach out. We are always here to answer your questions.
If you are not a current client but are looking for a financial advisory firm that puts you and your money first, we’d love the chance to chat. Simply schedule your complimentary introductory phone call here or call the office directly at 619-255-9554.
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