If you have felt like the markets were a little more volatile in 2022 than in recent years, you are right on the money!
As far as economic and market news, this week has been full of action – from another .75% interest rate increase to the lowest market close for the Dow Jones at levels not seen since November 2020.
Many are asking, what’s next ? And wondering when the skies might turn blue again.
We know that attempting to predict the future with accuracy, or how the market will react to future events, is an impossible task.
It IS important to remember that market fluctuations and volatility are part of the inherent risks of investing. One must be willing to take on a certain amount of risk and uncertainty in order to enjoy the benefit of higher potential returns.
Would you agree that there are certain factors that we CANNOT control? Such as, world events, market volatility, market timing and uncertainty.
So why not focus on the things that we CAN control…Things like, our behavior. Breathe, do not panic, focus on your long-term plan, talk about your fear and concerns with your advisor, know your money needs, stay diversified.
A well thought out investment plan will help in the face of uncertainty and will improve your ability to hold a long-term perspective and benefit from the long-term returns.
To help frame our emotions during sudden market downturns, check out the following chart:
History Shows That Stock Gains Can Add Up after Big Declines
Chart produced by Dimensional Fund Advisors
The above chart offers a clear and concise illustration of the reward for enduring the markets volatility and remaining invested during market downturns. Sticking with your plan helps to put you in the best position to experience and capture the markets recovery.
I find this to be helpful to shift my focus back to the benefit of investing for the long-term and that “sticking and staying” does pay.
So, how are you really doing?
Feel free to respond to this message, I genuinely want to know.
1. The average annualized returns for the five-year period after 10% declines were 9.54%; after 20% declines, 9.66%; and after 30% declines, 7.18%. Past performance is no guarantee of future results. Short-term performance results should be considered in connection with longer-term performance results. Market declines or downturns are defined as periods in which the cumulative return from a peak is –10%, –20%, or –30% or lower. Returns are calculated for the 1-, 3-, and 5-year look-ahead periods beginning the day after the respective downturn thresholds of –10%, –20%, or –30% are exceeded. The bar chart shows the average returns for the 1-, 3-, and 5-year periods following the 10%, 20%, and 30% thresholds. For the 10% threshold, there are 29 observations for 1-year look-ahead, 28 observations for 3-year look-ahead, and 27 observations for 5-year look-ahead. For the 20% threshold, there are 15 observations for 1-year look-ahead, 14 observations for 3-year look-ahead, and 13 observations for 5-year look-ahead. For the 30% threshold, there are 7 observations for 1-year look-ahead, 6 observations for 3-year look-ahead, and 6 observations for 5-year look-ahead. Peak is a new all-time high prior to a downturn. Data provided by Fama/French and available at mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Fama/French Total US Market Research Index: July 1926–present: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Ken French Website. The Fama/French Indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Results shown during periods prior to each index’s index inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission