In most of 2020 and the beginning of 2021, the volatility of the markets has tested the resolve of most investors and institutions. The coronavirus pandemic, social unrest and the change in administrations contributed as dramatic influencers. But short-term market movements, whether up or down, should not control your investment strategy. Having a sound financial plan and investment strategy in place can establish clarity and aid in a healthy financial life for both you and those whom you care about most.
While the adage, “buy low, sell high,” oftentimes applies to investment success, be sure to act judiciously. Timing the market can be challenging. Even the best investors, like Warren Buffett, do not always beat the market. With rare exception of devastating plunges, stock market dips and corrections occasionally occur. Thankfully, they’re followed by market recoveries. Sudden, severe and unexpected crashes of the 20th and 21st centuries - The Great Depression (1929), Black Monday (1987), and most recently, the COVID-19 Pandemic (2020) – struck us with extreme lows, but eventually the markets rebounded remarkably. Keep in mind, using history as our resource should be considered a reliable tool as we greet and make choices for the future.
So, what is the most valuable lesson investors learned in 2020? Securing long-term planning and investment strategies along with “staying the course” may be your best course of action. When stocks decline, long-term investors know better than to try to time the market. Collaborating with your advisor, understanding your financial goals and circumstances, along with ignoring market disruptions, will help produce a comprehensive strategy for long-term planning. When a carefully considered and executed plan is in place, likely you’ll experience little to no emotion-driven panic.
The graph below depicts a hypothetical example of an investor who had taken his/her money out of the market, subsequently missing out on some of the best performing days in history.
Using the example in the illustration, you’ll see that an initial $100,000 that stayed invested - highly volatile markets included - was rewarded with greater returns than those attempting to time the market. If you had missed the best five days in the S&P 500 over the last 20 years, your returns would have been considerably diminished, by more than $150,000. Furthermore, if you had continued to try your hand as a market-timer, jumping in out of the market, it is possible you could have missed the top performing 25 days in the S&P 500 over the last 20 years. Consequently, your return would have been less than your initial investment. Eye-opening, for sure.
Fear and emotions should not direct investment strategies. Maintaining a long-term perspective may help you avoid turning over your positions too frequently when markets rise and fall. Market timing is fallible as attempting to predict future movements is a game of chance, no matter the analysis, and even the most adept investors stumble. Adopting an investing style of discipline, patience and value is best practice for best strategy.
At Private Capital Group, we understand the emotional aspect of sustaining a decline in your overall portfolio performance. We firmly believe that staying invested long-term, avoiding the emotional roller coaster, may be the best investment and planning approach. With our thorough strategy of long-term perspective paired with a continually monitored financial and retirement planning process, irrespective of investor type, we strive to give you financial peace of mind. We have carefully designed each investment strategy to withstand market volatility and protect your assets and portfolio, while meeting your financial goals. Maintaining a tailored, diversified portfolio with a combination of stocks and bonds across various industries and asset classes, will help protect against uncertainty.
Private Capital Group would like to thank you for your continued trust in our team. We are always and will always remain committed and devoted to helping you achieve and enjoy financial wellness.
Wishing you safety and health, and we look forward to speaking you soon.
Enjoy your weekend.