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A character in a Robert Frost poem wisely remarked, “The best way out is always through.” Of course, he wasn’t talking about market volatility, but he very well could have been.
Whether you’re new to investing or have years of experience under your belt, it’s inevitable: You’ll experience market volatility eventually—it’s just a matter of when and for how long. You can’t avoid it; you can only persevere.
Picture it: August 2007. Youhave a $50,000 investment that tracks the S&P 500 Index. By February 2009,the same investment’s now worth $25,000—half its original value. What would youdo (or did you do) during this two-year downturn?
Fast-forward to April 2011.It’s been two years since the market bottomed out. If you stayed the courseduring the downturn, your original investment (which was worth $50,000 in 2007and $25,000 in 2009) is worth $50,000 again.
Hindsight is always 20/20
This is a true-to-lifeexample based on actual market data compiled from 2007 to 2011, the mostvolatile time in the stock market since the Great Depression. While we canglean only limited insight from this period of time—after all, past performancedoesn’t predict future returns—we can take comfort in one thing: The marketsare resilient.
As a financial advisor, Iknow the pitfalls of changing my portfolio based on short-term events. But asan investor, I know how hard it is to “tune out the noise” when headlines aboutmarket volatility dominate every website and news channel.
Most investors, myselfincluded, naturally want to protect their assets in market downturns and getthe most bang for their buck during market upswings. These feelings don’tchange your asset allocation or jeopardize your long-term goals … but actingon them does.
Here’s my approach to makingit through market volatility: First, I recognize how market volatility affectsme. I accept how unsettled I feel, and then I force myself to move on. Idistract myself by watching HGTV, challenging my kids to a game of Life,or losing myself in a good book. If this line of defense falters, I trust myrational side to prevail, as I trust the resiliency of the markets thatrebounded after the 2007–2009 downturn.
Click here for the original blog article from Vanguard.