Remaining Calm When the Market Fluctuates
The past few years have challenged our collective ability to “keep calm and carry on” as the saying goes. We’ve weathered a global pandemic, political uncertainty, moments of civil unrest and watched as Russia brought war to Ukraine. At times, it has been unsettling to review the day’s news, and it has certainly tested our resolve as we have witnessed these events impact our economy and the stock market.
I know if someone tells me to “calm down,” the first thing I feel in response is agitation. It’s frustrating to feel as if we are vulnerable to events that can influence our lives and money, and an understandable reaction is to want to exert as much control as we can. However, if we make rash decisions or moves with our investments based on emotion, we can wind up hurting ourselves. History suggests that staying the course may prove wiser.
We Have Seen It Before
Throughout America’s financial past, there have been periods of time surrounding major events when the stock market experienced drops that were 30% or more on the S&P 500 Index, including, but not limited to: The Vietnam War, Watergate, Black Monday, September 11, the subprime mortgage crisis, and the COVID-19 pandemic.
Even the most seasoned investors can feel the anxiety and stress that accompany these events. These drops cause markets to go into a “bear” market, which is defined by a 20% decline from a recent high for a sustained period.
Unfortunately, it is impossible to forecast exactly how far the market will go down, and how long it will last.
- During the Great Depression in 1930-1932, the market was down 83.0% over 2.1 years.
- On Black Monday, October 19, 1987, the Dow fell 22.6% in one day. It reached a low of 33.5% over 101 days.
- The financial crisis of 2007-2009 saw the market down 57% over 1.4 years.
What is important to remember is that, historically, no matter how strong a bear market is, or how long improvement takes, the stock market always recovers. The overall trend has been upwards.
What Can We Do?
- Patience is key. While it is not possible to know how long a bear market will last, market recovery will follow, and patient investors may benefit from staying the course with their financial plan.
- Try to keep in mind that sensational headlines will always be in the spotlight. That does not mean that everything in the world is as negative as it would seem according to the news. It can be helpful to review facts before making any money decisions and take a screen break if necessary.
- Talk to your financial advisor. Financial professionals are a great ally and sounding board to help you navigate the stresses of a volatile market. Additionally, your advisor can help you make decisions that are right for you based on your specific financial situation. For example, investors who are close to retirement may have different needs than a younger person who is new to the workforce and has more time to allow investments to grow.
While it can be stressful to wait and watch as the stock market takes time to reach the bottom of a bear market and subsequently begin to climb again, it may serve you well to stick to your long-term financial plan. Please feel free to contact us if you’d like more information.