Navigating Market Volatility
Today, the S&P 500 dropped 2.7% while the Nasdaq composite declined 4%. It’s important during times of heighten market volatility to maintain perspective as market swings like this can feel unsettling but they are not uncommon. History has shown that resilience and long-term discipline are key to successful investing.
Let’s take a step back and look at the bigger picture to put things in perspective. Consider these key historical insights:
Market Corrections Are Normal: Since 1950, the S&P 500 has experienced declines of 10% or more about once every two years. While such drops can feel dramatic, history has shown that markets have always recovered and continued their upward trajectory over time.
Rebounds After Bear Markets (declines of 20% or more): On average, bear markets appear every 5 years with an average decline of 33% and length of 11 months. However, as the following graph shows, the S&P 500 has rebounded by 37% in the year following a bear market and nearly 93% within five years.
Long-Term Growth Prevails: Even after significant downturns, markets have demonstrated their ability to recover and grow. For example, following the 2008 financial crisis, the market fully rebounded within four years and continued to climb to record highs. Investors who remained disciplined through the turbulence benefited greatly over the long term.
What is Going Right? – Diversification
During periods of market stress, diversification plays a critical role in reducing volatility and protecting portfolios. While U.S. stocks have faced pressure, other asset classes have provided stability:
Bonds are up 2.1% year-to-date, as measured by the Bloomberg U.S. Aggregate Bond Index (Agg). Bonds often act as a buffer during stock market downturns, providing income and stability.
International stocks have gained 11% year-to-date, as measured by the MSCI EAFE Index, highlighting the importance of global diversification. Different markets respond to economic conditions differently, and having exposure beyond the U.S. can enhance long-term returns.
While short-term swings can be unsettling, maintaining a diversified strategy helps ensure that your investments continue working toward your long-term financial goals.
Staying Focused on Your Financial Plan
While it’s understandable to feel concerned during times of market stress, reacting emotionally to short-term volatility can often do more harm than good. History reminds us that downturns are temporary, but the long-term trend of the market is upward.
That’s why it’s essential to stay focused on your personal financial plan rather than the daily headlines. Your portfolio is designed with a long-term strategy in mind—one that takes into account both periods of growth and inevitable downturns.
If you have any questions or would like to revisit your investment strategy to ensure it still aligns with your goals and risk tolerance, I’m always here to help. Please don’t hesitate to reach out to schedule a call or meeting.
Let’s stay focused on what truly matters—your long-term financial success.
Source: https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%
https://www.americancentury.com/insights/rebounding-from-market-corrections-and-bear-markets/
Pamela Chen is the Founder and Chief Investment Officer of Refresh Investments LLC, a fee-only financial planning and investment management firm with locations in Santa Monica, CA serving clients throughout Southern California and the United States.
The information provided in this article is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Refresh Investment’s views as of the date of this presentation. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Refresh Investments does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. Refresh Investments has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other Web Sites maintained by third parties over whom Refresh Investments has no control. Refresh Investments makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Refresh Investments is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Refresh Investments LLC.
