You may or may not be one of those people who check your investment account often in a down market if you’re well-diversified and don’t bother looking… good for you. If you keep looking and feel your heart racing with anxiety as the web page loads on your app, I need you to realize this isn’t a good thing. As the stock market trends down, investors get more and more fearful and, in turn, make harsh decisions. So I wanted to reassure you with a few tips on investing in a down-trending market.
Declines are part of investing
When the market loses ground or value, there is a golden rule (if there is such a thing for this) don’t panic and sell everything. You have to remember the economy is cyclical, and there will always be ups and downs. So volatility is expected. Over long periods, stocks have tended to move steadily higher, but history shows that stock market declines are an inevitable part of investing. The good news is that corrections (defined as a 10% or more decline), bear markets, and other challenging patches haven’t lasted forever.
While past results are not predictive of future results, every downturn historically has recovered and, over time, reaching new market highs. Read that previous sentence again. Downturns are Temporary.
Timing the market is practically impossible
When I ask clients to look at a historical chart and ask when they would buy and when they would sell, they simply point to the lowest point on the chart and say, “I’d buy there,” and then point to the highest part of the chart and say “I’d sell there” Easy right? Not so much. It’s tough to know where you are on the chart as its happening. Just when it seems markets can’t go any lower, they do, and just as it seems we are freefalling, the market bounces back too fast to get in. Investors that got out on the way down risk losing out on periods of meaningful price appreciation that follow downturns, and there’s no way to predict when that will happen accurately.
The Markets have rewarded long term investors
There’s an old story (which I can’t seem to find) that Fidelity did an extensive study on what kinds of investors performed the best, and they found that the accounts with the highest returns were classified as “dead or inactive.”
Essentially, dead people do better as investors than living people because they aren’t constantly fiddling with their investment accounts during the down-trending market the way living people do.
The issue is that there’s no evidence that it ever really happened. Google results turn up lots of stories but no actual study. Either way, the biggest things working on any investor’s side are time and patience. Trying to time the market or panic selling/buying will likely never beat the returns of long-held investments. If you have questions and would like to discuss them with an advisor, feel free to contact me.
The stock market is an unmanaged index which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
April 2022
