Build a plan to pursue your goals through all market cycles
Global investment markets can be especially turbulent during periods of rapid economic change, such as the reaction to the COVID-19 pandemic in the first quarter of 2020 and, most recently, central banks’ raising interest rates.
Sharp movements up or down in the stock market can challenge even the most seasoned investors. When market conditions appear to become unfavorable or economic news becomes unsettling, the uncertainty can prompt investors to head for the exits and ask questions later. But history shows that the stock market has withstood the test of time. Staying focused on long-term goals can help you through turbulent markets. As the chart below shows, the S&P 500® Index has continued an upward trend over the long term despite periods of stock price decline. Bull and bear markets haven’t lasted forever, and investing opportunities have often followed periods of market uncertainty. While market downturns can be discouraging, long-term trends show that the stock market has rewarded investors over time.
Navigating the unknown
Global financial markets have been on a roller coaster ride since the start of the pandemic. After dropping 34% during the February to March 2020 time period, the financial markets saw one of the strongest recoveries, hitting record highs in 2022.
Since the pandemic, the world has changed – from supply chain constraints to the Russian invasion of Ukraine to valuations and inflation hitting multi-decade highs – our lives and economies have transformed. In an effort to contain high inflation, the US Federal Reserve is currently on a path to increase interest rates to levels not seen in many years.
This truly is an unprecedented time to invest and navigate the financial markets. The economic landscape continues to evolve, and heightened market volatility reflects this uncertainty. It can be hard to maintain a broad perspective when markets are unsettled. However, it is important to remember that your investment timeline probably extends longer than next week or next year – or for some of you, it could even be 5, 10, or 20 years. Long-term investors who use history as a guide recognize that staying focused on financial goals requires the ability to navigate through all market cycles.
Let time work for you by staying invested
Some people believe investing is a matter of timing. Some also say it’s best to invest heavily in stocks when the market is going up, then get out when the market starts going down. But there’s a problem with that strategy: Even the smartest professional investors can’t accurately predict the exact timing of such market moves.
We believe long-term investment success is more likely to be the result of a consistent approach, based on time in the market – not market timing. For example, selling when markets decline can put you on the sidelines when stocks change direction. Turnarounds can happen quickly and are typically strongest in their early stages.
Missing even a few of the stock market’s best single-day performances could have a significant effect on your portfolio.
Stay committed to your plan – good years have tended to follow bad ones
History shows that it’s rare for the stock market to have two bad years in a row, and even more rare to record three bad years in a row. And when the market has recovered from downturns, it has historically done so with powerful rallies.
Even in the worst 20-year period the stock market has ever experienced – 1928 to 1948 – the S&P 500 Index posted an average annual gain of 0.55%. While this was a modest return, remember that those two decades included the crash of 1929 and the Great Depression of the 1930s, when unemployment soared to 25%, US gross domestic product plunged by more than 30%, and land values plummeted more than 50%.
Despite the economic challenges of those difficult years, a patient and committed investor could have had a positive return on money invested in the stock market during
this period.
Use history as a guide when reviewing your investments
Bull markets historically have lasted three times longer than bear markets.
While bear markets can test even the most steadfast long-term investors, they have historically lasted only a short time when compared with the duration of bull markets.
As you can see in the chart below:
- Prior to the COVID-19 pandemic, the nine down markets since 1970 lasted an average of just 12 months.• Prior to the COVID-19 pandemic, the nine down markets since 1970 lasted an average of just 12 months.
- The 10 up markets during that period lasted an average of 51 months, ranging from as few as 21 months to as many as 130 months.• The average bull market gained 158% while the average bear market lost 27%.
Focus on the future and diversify your investments
A mix of investments can provide the potential to take advantage of return differences among investment types and help protect you against possible price swings. While diversification does not ensure a profit or protect against loss, it can help reduce the overall risk and volatility of your investment portfolio.
Let’s look at the growth of $10,000. A hypothetical diversified portfolio of stocks, bonds, and money market securities would have helped manage market volatility during this turbulent 20-year period.
Change may bring opportunity
We live in a time of rapid change, economic growth, and technological innovation. Such factors often bring opportunity for the right companies and potentially for investors.
History shows that patient investors who remain focused on the long term may withstand turbulent periods and take advantage of the opportunities that global change can bring.
Our investment teams use a disciplined, research-driven process to track global change and its potential opportunities. You can work with your financial professional to create a plan to help you find the right investment opportunities for your long-term goals.
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Diversification may not protect against market risk.
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The Bloomberg US Treasury Bills 1-3 Month Index measures the performance of public obligations of the US Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months.
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