Despite the inevitable anxiety that accompanies it, stock market volatility may be beneficial. Corrections are a normal and essential part of the cyclical nature of the market, serving as a “pressure release valve” when equity markets soar too high too fast.
During the 17-month bear market that occurred from October 2007 to March 2009, the S&P 500 plummeted nearly 57%. Yet, it bounced back in a big way, ending 2009 with a 26% gain. More recently, during the initial month of the COVID crisis (from mid-February to late-March 2020), we saw the Dow Jones Industrial Average lose 37% of its total value, then rebound back up 43.7% by the end of the year.
The bond market has also experienced noteworthy volatility. From January 2021 through spring of this year, the Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, dropped 11%, a record for global bonds.
These are the types of market swings that can test investors. A comprehensive plan can help paint the bigger picture, bringing the long-term back into focus, and outlining the many factors that go into reaching your goals — not just your investment returns.
So, what should you consider as you navigate market volatility?
1. Maintain Your Long-Term Focus
Over the years, those who commit to weathering the storm — remaining disciplined and focused on their long-term investment plan when markets turn volatile — eventually have been well rewarded for their patience.
History has repeatedly shown it’s not your timing of the market, but rather your time in the market that’s the primary driver of investment growth. While some may seek the calmer waters of cash, volatility-induced stock declines (particularly in the face of otherwise strong earnings data) offer an opportunity for long-term investors to reduce their average share cost through dollar-cost