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Wealth & Well-Being

The Case for Staying Invested in Volatile Markets

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Global markets have taken us for a wild ride thus far in 2022. Inflation is not yet under control, and the Fed is raising interest rates to combat it. Geopolitical tensions are leading to deglobalization, and investors are naturally worried about what this means for their portfolios. Whether we like it or not, most of us have acknowledged that these unresolved dynamics may keep markets volatile for the foreseeable future.

Volatility can be hard to stomach for many people, and investor sentiment is reflecting just that. According to AAII’s Investor Sentiment Survey, 20% of participants responded that they feel “bullish” about the markets right now. As such, it’s no surprise that we are fielding more frequent questions from clients and prospects about whether it’s time to “get out” or at least hold excess cash until the markets temper.


While it may feel counterintuitive, times of market turbulence are not ideal for making major money moves. Of course, you’ll want to re-balance to make sure you’re still well diversified. Additionally, there are ways to take advantage of down markets like tax loss harvesting or buying more of the companies you already hold while valuations are more attractive. But overall, volatile markets are the time to stay put.

There are numerous reasons long-term investors should remain invested, especially when the seas get rough, so to speak. But these can be difficult to remember when you see your account balances decline. To remind you why a long-term investment strategy works—and most importantly, to grant you some peace of mind—we’ve compiled this list that makes a hard case for staying invested when the markets get moody.

  1. Markets dip more often than you might realize.

So far this year (at the time of this writing in May 2022), the S&P 500 is down about 14%.

If I were to ask you how often the market dips below 14%, what would be your best guess? Once every ten years? Five years? What if I told you that it happens almost every year—even when annual returns are high?

If you are a close follower of market trends, this might not surprise you. But, if you are the type of investor who only pays attention when things get rough and the media headlines have everyone up in arms, this might sound exceptionally alarming.

But the reality is that this happens all the time. Let’s look at Figure 1 below. This chart shows the annual rate of return of the S&P 500 and the intra-year declines that the market experienced. From 1980 to present day, the average downturn was 14%. But despite the average intra-year drop of 14%, annual returns were still positive in 32 of the 42 years.

While the volatility we’re feeling right now might make you uncomfortable, remember that it is far from abnormal or unprecedented.

  1. Timing the market is a fool’s errand, and missing the mark comes with costly consequences.

Did you know that the average DIY investor underperforms a basic, indexed 60/40 portfolio by 3.5% on a yearly basis?

Trying to time the market and missing the mark has serious consequences. That’s not just because it’s impossible to predict when the market will begin to decline, but also when it will hit the bottom and turn around. As a result, investors miss out on some of the market’s best trading days while sitting on the sidelines with their cash!

Just look at Figure 2 below that illustrates what would have happened to an investor who missed out on ten of the market’s best days over the last 20 years. That’s just 1.5 weeks out of 100. Ten out of 7,300 days.

The investors who remained invested were the ones who were rewarded. You can see the performance gap between the investor who “stayed put”—9.40% return—and those who did not.

And what’s worse is that seven out of those ten best days happened within only two weeks of the market’s worst days! Which means that those investors who pulled out at or near the bottom were the ones most likely to miss out.

Investors are bad at market timing but try regardless. Why? Because most people struggle to separate their emotions from investing. The idea behind investing is to buy low and sell high. Yet, following an emotional investment cycle sparked by reactive decisions may bring the opposite effect: buying at higher prices and selling at lower prices.

  1. Your investment portfolio is built to last.

When times get tough and market volatility makes you feel nervous, remember that your portfolio is built to withstand these fluctuations. It is designed to be intentionally flexible and prepared for corrections, as well as potential recessions. We spend time getting to know you and building your plan to ensure your investment allocation is suited to fit your needs, timeline, and tolerance for risk.

When investing in equities, it’s equally as important to be globally diversified. It’s just like the old proverb: don’t put all your eggs in one basket (where the “basket” is a particular asset class or country). Owning large and small companies in the US and abroad offers the potential to earn positive expected returns in the long run, but each of these asset classes may perform quite differently over short periods. There is no reliable evidence that this performance can be predicted in advance. Using global equities provides an opportunity for diversification benefits as well as potentially higher expected returns over time.

So, despite the headwinds rattling markets, we are confident that our clients are currently positioned to withstand them with ease. Of course, we will continue to re-balance portfolios as necessary to align back to their targets, and look at capital loss harvesting opportunities for clients who may benefit from tax planning. But it is important to remember that your portfolio is tailored to your specific needs and goals.


We know that these events can be traumatic, but it’s important to remember that market downturns are not rare and are accounted for in your financial plan.  

The individuals who lose the most money in a downturn are those who pull out at the bottom and re-buy when the stocks rebound. This jumping in and out of the market is costly and exactly why we don’t recommend letting headlines dictate your investment strategy.
The best defense against unfavorable market conditions is making a plan and sticking to it. This means we focus on the elements we can control such as asset allocation, diversification, and staying disciplined through market volatility. A good strategy gives you room for market fluctuations—from those that last a few days to those that last a few years.
As your financial allies, we are here to discuss any questions you may have about this or other changes that could affect your plans.  Feel free to call the office or schedule an appointment so that we can help give you the peace of mind you need to feel confident in your investments. 

Written by Rachel DeCarolis and Natalie Marin in collaboration with Lexicon Content Development

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