Recent market swings have many investors feeling anxious. While uncertainty is uncomfortable, historical data provides valuable perspective that can help calm your nerves.
Remember These Key Facts
- Market corrections are normal: The market typically drops by 10% about once every year, 15% every 3.5 years, and 20% every 6 years. These corrections are built into our long-term strategies.
- Timing the market is nearly impossible: Data shows that missing just the 10 best trading days can cut your long-term returns in half. Importantly, 50% of the market’s best days occur during bear markets, when many investors have moved to the sidelines.
- Diversification works: During the recent market decline, while global stocks fell 10%, bonds gained 3.4%. Different asset classes respond uniquely to market conditions, providing balance to your portfolio.
- Staying invested beats perfect timing: A Schwab Center for Financial Research study comparing investment approaches showed that even with the worst possible timing (investing at market peaks), you would still significantly outperform keeping money in cash. The difference between the best timing ($173,836) and worst timing ($141,572) is far less than the gap between any investment strategy and staying in cash ($63,851).
Source: Schwab Center for Financial Research
A Simple Formula for Success
Rather than trying to predict the unpredictable or making emotional decisions, follow this proven approach:
- Stay diversified across multiple asset classes
- Keep costs low with efficient investment vehicles
- Rebalance regularly to maintain your target allocations
- Continue investing available cash, especially during downturns
- Stay the course with your long-term financial plan
Historical Perspective
Consider that since 1926, after 10% market declines, stocks have rebounded an average of 11% within just one year. After 20% declines, the one-year rebound averaged 21%. Even after severe 30% corrections, markets typically bounced back 23% within a year.
The future remains unknown and markets will continue to be volatile. However, by following a disciplined approach based on diversification, rebalancing, and emotional control, you position yourself to benefit from the long-term growth potential of the markets while managing risk through the inevitable ups and downs.
Remember: Boring and historically proven is better than flashy and emotionally satisfying.
Want a deeper understanding of market volatility?
For a comprehensive analysis of market behavior during uncertain times, including detailed historical data, investment strategy comparisons, and additional evidence-based recommendations, download our white paper: “Navigating Market Uncertainty Through Time-Tested Investment Principles.“
Download the White Paper to gain valuable insights that can help you maintain perspective and confidence through any market condition.
Contact us today to discuss how these principles apply to your specific financial situation.
Important Disclosure:
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
