Volatility has come down after spiking earlier this year, but it seems to have settled at a level above what we saw in 2017. A recent note from Fidelity Viewpoints provides some interesting insights for investing in volatile markets.
“Dramatic moves in the market may cause you to question your strategy and worry about your money,” according to Ann Dowd, vice president at Fidelity Investments. “A natural reaction to that fear might be to reduce or eliminate any exposure to stocks, thinking it will stem further losses and calm your fears, but that may not make sense in the long run.”
Market drops may sting, but history shows that the U.S. stock market has been able to recover from declines with positive long-term returns. According to research from Fidelity Investments, over the past 35 years, the market has experienced an average drop of 14% from high to low during each calendar year, but still had a positive annual return more than 80% of the time.Trying to time the market and failing can really cost you. Any investor would be thrilled to avoid the down days but it is hard to predict those. On the flip side, missing the best days can have a huge impact on your portfolio.For example, assume you had invested $US10,000 in the S&P 500 on January 1, 1980 and reinvested all dividends. Today you would have $US615,363. However if you had missed the five best days you would have less than $US400,000 today. And missing the best 30 days for the S&P 500 would have left you with $US117,509 today. Missing the best days can be just as damaging as staying invested for the worst days.
The best way to invest during volatile periods is to have a plan and stick to it, according to Fidelity Investments.
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