The Coronavirus has spread from China to numerous countries around the world, including the United States. Markets have been reacting as the Dow Jones and the S&P 500 have both dropped more than 13%.
In the chart above, the purple line represents the actual growth of the S&P 500 over the past 30 years. As you can see from the chart, there were some bumps along the way. The gray sections represent recessions. However, if an investor came in at the start, and stayed in the market through all of the turbulence, his investment could have grown by over 1000 percent.
Now look at the light blue line. This line represents what many investors want and sometimes expect: no market turbulence and only upward movement. This is, of course, completely unrealistic. However, in both scenarios the result is the same. If an investor entered the market 30 years and didn’t pay attention to his investment until today, he would feel fantastic about the growth of his investment, having missed all the market turbulence. This example goes to show you should stay calm and invested through market movement.
Timing the market correctly is very difficult since markets are unpredictable. Missing just a few good days can cost you thousands of dollars.
Remember, investing is a long-term plan. While markets may move from day-to-day, you are in it for the long-haul. Market volatility may be an emotional experience. However, pulling out of the market at the first sign of volatility can cost you money and hurt your overall financial plan.
Don’t Make an Emotional Decision
Investors may struggle to separate their emotions from their investment decisions. When the market is high, investors may feel excited and invest at high prices. Once there is a downturn, fear can set in leading investors to offload their investment at a lower value. This dangerous cycle of excessive optimism and fear leads to poor decisions at the worst time.
Time, not timing, is the best way to capitalize on the stock market’s gains.
Should You Be Concerned?
Investing can be emotional, especially during a time where markets are reacting to current events. Remember, market volatility is normal, even amidst the Coronavirus epidemic. Our clients have diversified portfolios designed uniquely for their specific long-term goals and objectives. It’s best to stay the course and not attempt to time the market.
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If you have any questions, please do not hesitate to contact us. You can reply leave us a note below this article, email us at [email protected] or call us at (410) 363-7211.
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