The history of the stock market has always had a consistent message; volatility is a normal part of investing. Another consistent message is that the U.S. stock market has been resilient throughout its history, and has weathered the storm during periods of crisis, only to recover and move higher over longer periods of time. While the severity of the impact COVID-19 will have on the global economy is still highly unknown, we recommend keeping your emotions in check during these volatile times. As financial advisors, we often hear phrases such as “I am going to get out of the market now and will get back in when things are good again.” Translated, this basically means, “I am going to sell low, let the market recover, miss the gains, and then I am going to buy high.” For those of us who have been through the tech crash in the early 2000’s and the financial crisis during 2007-2008, we have seen what the impact of maintaining a strategic asset allocation policy can have during market recoveries.
The chart below, produced by BlackRock, is a good piece to review when fear and emotion come into play. Investors tend to ride markets up and then debate selling when markets go down.
As you can see on these charts, periods that followed investors cashing out (based on the S&P 500 Index) have experienced above-average returns (14.1% one year later), while periods where cash flowed in have experienced below-average returns (6.1% one year later). People know the concept of buying low and selling high but still tend to let emotion take over and do the exact opposite; buy high and sell low. During volatile times, we continue to recommend:
- Sticking to your strategic asset allocation policy and not selling into panic. Reach out to your Advisor to discuss your questions and concerns.
- Reviewing your risk tolerance, but also not selling based on short-term performance of the market.
- Long-term investing is exactly that; long term. Build your portfolio based on your risk tolerance and reduce your risk level over time.
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Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
