Having the same “roll with it” attitude applies to many situations—even market volatility, when the value of your personal investments fluctuates. One day they’re up, the next day they’re down, before going back up again.
A lack of stability can make even the savviest investors question their strategy. But, as you’ll see, haphazardly moving in and out of the market may do more harm than good.
History shows sticking to your plan over time can produce better results than reacting—or overreacting—to market volatility.
Today is just a blip
Scanning recent headlines, it’s clear to see we live in unpredictable times. But how do today’s potentially explosive events stack up with some of the most infamous days in history?
We partnered with T Brand Studio, the brand marketing division of The New York Times, to develop a tool that illustrates why even on the craziest days, from the Cuban Missile Crisis to the dot-com bubble burst, it pays to pan out and take the long-term view.
Looking back, you can see even the worst market events are mere blips on a much larger spectrum. For example, if you invested $100,000 in a diversified portfolio before the Black Monday stock market crash of 1987, you would have suffered a sharp, short-term loss.
On October 19, 1987, the Dow fell 22.6% in the largest one-day percentage loss in market history. But two days later, the market began to recover. Half of what you lost on Monday could have been recuperated by Wednesday.
Compounded over 30 years, your investment would have grown to more than $1.5 million. Had you kept that money in cash, the gains would have been minimal by comparison.
Don’t let emotion dictate your investment plan
Clearly, the market can and usually does rebound. It can even excel after some of the worst downturns.
Keeping that in mind, it’s impossible to cut off your investments from your emotions. Your financial goals, your retirement, and your loved ones you’d like to leave a legacy for are all close to your heart. We get it.
Just because you care deeply about your money doesn’t mean emotion should eclipse logic. Instead, acknowledge what you’re feeling, dig into the cause of your fears, and formulate a plan to deal with them.
As you can see, the sun does come up. Even after the worst days.
Rain or shine.
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This hypothetical example is provided for the purposes of illustration only. It does not represent a specific investment and the rate of return is not guaranteed. All figures are in today’s dollars.
All investing is subject to risk, including the loss of the money you invest. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. 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. Diversification does not ensure a profit or protect against a loss.
The charts above represent the historical performance of a 60/40 stock-bond split and a 100% cash investment between January 1, 1950, and December 31, 2017. The 60/40 portfolio allocation is based on the following: 60% stocks consisting of the S&P 500 Index from 1950 to 1979; Wilshire 5000 Index thereafter; 40% bonds consisting of Standard & Poor’s High Grade Corporate Index from 1950 to 1968; Citigroup High Grade Index from 1969 to 1972; the Lehman U.S. Long Credit Aa Index from 1973 to 1975; Barclays Capital U.S. Aggregate Bond Index thereafter. Cash consists of Ibbotson U.S. 30-Day Treasury Bill Index from 1950 to 1977; Citigroup 3-Month Treasury Bill Index thereafter.
Daily returns were extrapolated from the monthly return data, assuming a constant daily growth rate through September 2009 for cash and 1988 for bonds; actual daily returns used thereafter.
The final account balances above do not reflect any taxes or penalties that may be due upon distribution. Withdrawals from a traditional IRA before age 59½ are subject to a 10% federal penalty tax unless an exception applies.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.
The services provided to clients who elect to receive ongoing advice will vary based upon the amount of assets in a portfolio. Please review the Vanguard Personal Advisor Services Brochure for important details about the service, including its asset-based service levels and fee breakpoints.