There's no question that periods of increased market volatility can be unsettling. However, the decisions you make now — staying the course or moving to the sidelines — can have long-lasting implications. Making emotionally-driven decisions based on short-term market events is one of the fastest ways to derail a long-term investment strategy.
That's because timing the market is essentially impossible. Investors tend to sell at the worst time — when markets fall — and buy back in at higher prices once they recover. The data bears this out: according to DALBAR, the average equity investor has underperformed the S&P 500 for 15 consecutive years. In 2024 alone, the S&P 500 returned 25.05% while the average investor earned just 16.54% — an 848 basis point gap driven largely by poor timing decisions. (Source: dalbar.com/press-release/investors-missed-the-best-of-2024s-market-gains-latest-dalbar-investor-behavior-report-finds/)
Missing even a handful of the market's best days compounds the damage. Hartford Funds research shows that an investor who missed just the 10 best trading days over a recent 20-year period saw their returns cut nearly in half — and seven of those best days occurred within 15 days of the market's 10 worst days. Sitting out during volatility often means missing the recovery. (Source: hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html)
Those who stay invested, on the other hand, can benefit from the market's long-term resilience. The S&P 500 has delivered an average annual return of approximately 10.4% over the past 30 years — through the dot-com crash, the 2008 financial crisis, a global pandemic, and more. (Source: https://www.fidelity.com/learning-center/trading-investing/sp-500-average-return)
Build a Plan — and Stick to It
A time-tested approach to managing investments through uncertainty is to focus on asset allocation. The right allocation — aligned with your goals, timeframe, and risk tolerance — keeps you focused on the long term instead of reacting to short-term noise. It also removes the temptation for emotional decision-making that can have a lasting negative impact on your portfolio.
If you're concerned about how current market conditions are affecting your investments, please reach out. We're here to review your allocation, discuss your goals, and help make sure your strategy is built to weather whatever comes next.
Your long-term future is too important to be driven by short-term emotion.
This content is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.