The recent market swings have grabbed headlines around the world, recording some of the largest daily moves in recent history. Such wild gyrations in the markets can be alarming to investors and may cause anxiety about the future of the investing environment. At CBIZ IAS, we understand the discomfort around market volatility and would like to put some context around recent events to help you navigate through turbulent times.
We've Seen Shocks Before
As investors, we understand that there may be shocks to the global economy and the markets from time to time. Shocks can come from within the markets, as in the subprime loans of the 2008 financial crisis, or from external factors, such as the coronavirus. Recently, we saw the U.S. market almost enter a bear market in reaction to the Fed’s rate hikes in 2018, only to rebound in 2019 when the S&P 500 returned over 30%.
Avoid Emotional Investing...At the Market Top and Bottom
Large drops in the market can unnerve even the most rational investor. The emotions that govern us in times of market lows seem most visceral, but they come from the same place as the euphoria experienced during market highs. When markets rise quickly, investors often wish that they had invested more, and as greed sets in, we want to let our winners run. Conversely, when markets fall quickly, fear sets in, and we want to cut our losses. If we act on our emotions instead of riding them out, history tells us that we underperform the market because investors tend to buy high and sell low. This is because it is impossible to time the market.
Stay the Course
Emotions will always be a part of the market experience. The antidote is to stay invested and disciplined. We understand that market volatility can be challenging to endure, especially when there seems to be no end in sight. However, we know that the markets, the American economy, and investors have demonstrated resilience in the face of multiple challenges, including the 9/11 terrorist attack and the Great Recession. Stay the course and keep a long-term perspective.
Published on September 11, 2020