Commentary from John Ameriks, head of Vanguard Quantitative Equity Group

John Ameriks shares why it’s particularly important to maintain perspective and remember why you’re invested in stocks, during market downdrafts.

TRANSCRIPT

Vanguard Perspectives® Hi. I’m John Ameriks. I oversee a team at Vanguard that’s responsible for many of our actively managed stock funds. We receive questions from time to time from investors who wonder, with a short time horizon: “Are stocks still appropriate for me?” When investors don’t have the luxury of thinking long-term . . . Our view is stocks should always have a place in a well-diversified, balanced portfolio. They’re the only asset class that really offers broadly diversified exposure, along with a higher rate of return than what one can get from instruments that have a lower level of risk. While the risk is definitely a part of equity market investing, it’s an important part. It generates a return that retirees and other investors can use, even with a short horizon. Well, market downdrafts are part and parcel of equity investing. It’s not so much worrying about how do you protect from that occurring. There’s almost no way to do that while staying invested. It’s how do you react to those circumstances when they occur? You’ve got to have a balanced reaction. You’ve got to maintain perspective, and remember why you were invested in the first place. Lost time when it comes to saving and investing is a real handicap. A lot of people have regrets around the savings decisions that they’ve made in the past. The thing to do there, in terms of making up for lost time, is much more about savings decisions than it is about investment decisions. People really need to trade off whether they want to take a significant amount of more risk or whether they can part with some of the things that they may be accustomed to in terms of spending to try to get back on track.

Important information
All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. 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.

Investments in bonds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

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