For many people, market volatility can be an unsettling experience. The Washington Post reports that U.S. markets had fallen sharply with nearly every asset class—stocks, bonds, gold, and oil—under siege. Stocks closed at their lowest point since President Trump’s second week in the White House.
“The important thing is not to panic: uncertainty is a constant, and downturns are to be expected, such as current market activity due to the COVID-19. Market setbacks have typically been followed by recoveries,” says Brendan Hall, Fidelity Investments senior vice president and Texas regional leader. “Instead, it’s important to take a long-term view, and this is an opportunity to review your investing objectives to ensure your strategy is in line with your goals. Trying to time the market has proven challenging—and could cost you.”
Looking back at the performance of the S&P 500 since 2000, an investor who missed out on only the five best-performing days in the market would have ended up with a portfolio worth roughly 34 percent less than one that had been fully invested throughout the period, Hall says. Further, missing just 30 of the best-performing days for the market since 2000 would have reduced the value of a portfolio by about 79 percent, compared to one that remained fully invested.
“For many people today, pandemics like COVID-19 can spark some emotions where we act with fear instead of acting with discipline,” Hall says. “While understandable, we encourage investors to take the emotion out of the situation and keep their financial plans on track.”
For those who feel they must take action, Hall offers the following suggestions:
- Check your asset allocation to ensure it’s in line with your risk tolerance and appropriate for your age group or time horizon until retirement. Or consider investing in a target-date fund (a fund tied to the anticipated year of retirement), which may provide more peace of mind during periods of volatility.
- In addition, make sure you consider a diversified investing strategy with exposure to different areas of the markets—U.S. small- and large-caps, international stocks, investment-grade bonds—to help manage the overall risk in your portfolio to your age, risk tolerance and goals.
- Rebalance your portfolio if needed. Portfolio drift can happen during bull markets when stocks rise, and one’s asset allocation deviates to a higher equity allocation. Make sure your portfolio is balanced, and your equity allocation is in line with your goals.