Market volatility can feel unsettling, especially when headlines are shouting for attention. When you own shares in a company, you’re essentially claiming a stake in its future success. The profits can come through dividends or share price growth, but these future returns always carry uncertainty. Markets never give us a smooth ride.
As news reaches the markets, investors reassess companies’ prospects and adjust what they think shares are worth. Good news can boost confidence, while bad news can do the opposite.
The recent market turbulence, largely due to uncertainty around economic policies in the United States, reminds us that investing isn’t without challenges. At the time of writing, US markets are at similar levels to where they were before Donald Trump’s election. Uncertainty is everywhere – but then again, it always is.
Information gets priced into markets faster than most of us can react, so it’s generally wisest to accept the current share price as fair. Trying to second-guess market movements is a game for those with both confidence and ability. While many have the former, evidence shows that few – even the professionals – have the latter.
As investors, we have little choice but to ride out market turbulence and accept that ownership comes with bumps along the way. There are no easy answers – patience and resilience are essential.
During times like these, it’s important to remind ourselves of key principles to avoid making decisions that could lead to poor outcomes. Here are some powerful reminders that can bring comfort to long-term investors.
Reminder 1: Avoid trying to time when to be in or out of markets
It’s tempting to “wait out the storm.” However, research shows that few investors, whether professional or otherwise, can successfully time when to be in or out of markets. The cost of getting this wrong can be extremely high, as the graphic below shows.
Reminder 2: The market falls from a peak every single year
The stock market falls from a high point at some stage every year. Current market falls are actually quite normal. This doesn’t make it easy to stay invested through such bumps, but it’s vital to do so. Where markets go from here, nobody truly knows. New information – which is random by nature – and how investors react to it will determine this.
Reminder 3: Volatility is already factored into your financial plan
Volatility – the bumpiness of the investment journey – is always present in markets. When we make investment return assumptions, we already account for this expected volatility. Significant and occasional market declines are normal and expected. We fully consider this when making investment recommendations for you.
We can reduce (but not eliminate) the impact of market falls through global diversification and by holding an appropriate amount in high-quality bonds. Realistic assumptions help maintain reasonable expectations and increase your chance of success by avoiding knee-jerk decisions.
Things may get worse before they improve, but they might not. Only with hindsight will anyone know for certain.
The most important thing to remember is that your financial plan is designed with these market fluctuations in mind. While headlines focus on daily movements, your plan focuses on years and decades. That perspective makes all the difference.
If you have any concerns about recent market movements or would like to discuss your investment strategy, please don’t hesitate to get in touch. That’s exactly what we’re here for.
If there’s anyone in your life who might be feeling anxious about recent market movements and could benefit from a calm, considered approach to financial planning, they can learn more about working with Emery Little here.
