One of the greatest challenges investors often face is not selecting the right investments, it’s maintaining the discipline to stay the course of their investment plan and goals when equities become volatile.
Periods of market volatility can be unsettling. Negative, doom and gloom headlines become more frequent and pronounced, predictions of an impending problem can circulate in the news, and downward daily market movement can seem more significant than it really is. It’s only natural to feel concerned when account values temporarily decline; however, history has consistently demonstrated that market volatility is not an anomaly, rather, it’s a normal and expected part of long-term investing and not something to fear.
Savvy investors understand that volatility is the price paid for participating in the long-term growth of the financial markets. Rather than viewing market fluctuations as something to fear, they recognize it as a natural part of the investment journey. Savvy investors know that volatility can be managed by a long-term investing mindset and staying disciplined through various market conditions. They also know it can provide an opportunity to earn higher long-term returns.
As wealth managers, we understand that every investor is unique, but one thing is universal, your goals should drive your investment decisions, not your emotions.
Some investors are planning for retirement. Some are already retired. Others want to fund a child’s education, purchase a second home, leave a legacy, or create reliable income throughout retirement. Each goal has its own timeline, level of risk, and investment strategy.
When investments are designed around clearly defined personal goals, market volatility becomes easier to put into perspective. A difficult week, month, or even year in the market doesn’t necessarily change the likelihood of achieving goals that may be five, ten, or twenty years away.
The market’s daily movements are temporary. Your financial goals are not. One of our responsibilities as wealth managers is to help clients keep their investment decisions aligned with their long-term goals and not with their emotions.
Here are a few important reminders to help you stay committed to your well-designed investment strategy when market uncertainty causes others to lose sight of their long-term goals.
Volatility Is Normal
Many investors mistakenly believe that successful investing should be smooth and predictable. In reality, market pullbacks, corrections, and even bear markets occur regularly.
Throughout history, markets have navigated wars, recessions, inflationary periods, financial crises, pandemics, political uncertainty, and countless unexpected events. While each period felt unique at the time, one characteristic remained remarkably consistent, equity markets eventually recovered and continued their long-term upward trajectory.
Every major bull market has included corrections. Every long-term investment journey has experienced periods of uncertainty.
Remember: temporary declines have always been a normal part of investing, not a sign that investing has stopped working. Building a portfolio that takes into account volatility and a financial plan that can “expect the unexpected” should be a part of your investment strategy.