When financial markets hit periods of volatility, investors will have many questions in mind. Is this the right time to sell? Why are my investment account balances dropping? Shouldn’t I be doing something?
We understand the need to stick to the financial plan regardless of market moves, but sometimes investors remain nervous about all the market noise in the news.
The stock market downturn at the end of 2018 provided an instructive case study on what can happen if investors make changes just when the market situation starts to look dire.
The illustration below shows that a hypothetical, diversified 60% stock/40% bond portfolio that started with $1 million on November 1, 2018, would have lost 5.7% of its value by Christmas Eve. Yet that same portfolio would have jumped to a 4.2% gain just two months later.
As a result, an investor who sold the portfolio’s assets at the Christmas Eve bottom would have nearly $100,000 less than one who stayed the course.
Staying the course can pay off; abandoning course can be costly
The global stock market drop in late 2018 offered a lesson in investor behavior
Sources: Vanguard calculations, based on data from FactSet, as of February 28, 2019. U.S. stocks represented by CRSP US Total Market Index. U.S. bonds represented by Bloomberg Barclays U.S. Aggregate Float Adjusted Index. Global stocks represented by FTSE Global All Cap ex US Index. Global bonds represented by Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index. The performance of an index is not an exact representation of any particular investment, as you cannot directly invest in an index.
3 tips to ride through market volatility
When market volatility happens, it’s always important to remember the value of:
- Having realistic expectations. Vanguard Investment Strategy Group anticipates higher financial market risks and lower financial market returns over the near- and medium-term.
- Staying diversified. A great way to insulate a portfolio is to have exposure to stocks, bonds, and international markets. Bonds can act as ballast during downturns. International exposure provides access to markets that may be generating positive performances when others are falling.
- Tuning out the noise. There’s an adage of never checking accounts when stocks are tanking. It’s smart advice. As the graphic above shows, making a decision based on a recent market event often results in a mistake.
Markets become volatile. That’s a given. When they do, this analysis may help investors consider the potential downside of emotionally reacting to market noise by selling investments or trying to time the markets.
Originally Posted on September 9, 2019 – How To Beat The Jitters When The Markets Shake
The contents of this document and any attachments/links contained in this document are for general information only and are not advice. The information does not take into account your specific investment objectives, financial situation and individual needs and is not designed as a substitute for professional advice. You should seek independent professional advice regarding the suitability of an investment product, taking into account your specific investment objectives, financial situation and individual needs before making an investment.
The contents of this document and any attachments/links contained in this document have been prepared in good faith. Please note that the information may have become outdated since its publication, and any information sourced from third parties is not necessarily endorsed by The Vanguard Group, Inc., and all of its subsidiaries and affiliates (collectively, the “Vanguard Entities”).
This document contains links to materials which may have been prepared in the United States and which may have been commissioned by the Vanguard Entities. They are for your information and reference only and they may not represent our views. The materials may include incidental references to products issued by the Vanguard Entities.
The information contained in this document does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The Vanguard Entities may be unable to facilitate investment for you in any products which may be offered by the Vanguard Group, Inc.
No part of this document or any attachments/links contained in this document may be reproduced in any form, or referred to in any other publication, without express written consent from the Vanguard Entities. Any attachments and any information in the links contained in this document may not be detached from this document and/or be separately made available for distribution.
This document is being made available in Hong Kong by Vanguard Investments Hong Kong Limited (CE No. : AYT820) (“Vanguard Hong Kong”). Vanguard Hong Kong is licensed with the Securities and Futures Commission (“SFC”). The contents of this document have not been reviewed by the Securities and Futures Commission in Hong Kong. Investment involves risk. Past performance is not indicative of future results. Investors are advised to consider their own investment objectives and circumstances. If you are in any doubt, you should seek professional advice.
Copyright, trademark and other forms of proprietary rights protect the contents of this document. You may not copy, publish and/or distribute any derivative works from the information from this document.
Disclosure: Vanguard Investments
The information contained in this document does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction. This document is issued by Vanguard Investments Hong Kong Limited (CE No. : AYT820) which is licensed with the Securities and Futures Commission (“SFC”). The contents of this document have not been reviewed by SFC. Investment involves risk. Past performance is not indicative of future results. Copyright, trademark and other forms of proprietary rights protect the contents of this document. You may not copy, publish and/or distribute any derivative works from the information from this document.
© 2019 Vanguard Investments Hong Kong Limited. All rights reserved.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Vanguard Investments and is being posted with permission from Vanguard Investments. The views expressed in this material are solely those of the author and/or Vanguard Investments and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.