It’s all you hear about, it’s all people are talking about: conflict in the Middle East and how it is affecting the markets. Learn more from the Capital Group on why staying invested is important amid a decline in the markets.
“Should the worst oil supply shock in decades persist, investors may have doubts about their investment approach in such an uncertain environment. It’s natural to seek safer shores when markets are choppy. But it’s equally important to step back, gain perspective, and look beyond the horizon.
History shows the market has always recovered from previous declines. Here are five insights that can help you regain confidence and stay invested for the long haul.
1. When in doubt, zoom out
Think back to early 2022. Russia’s invasion of Ukraine delivered a geopolitical shock that rattled markets and dominated headlines, much like today. Brent crude climbed nearly 30% to a high of $128 per barrel. At the same time, central banks led by the U.S. Federal Reserve moved aggressively to raise interest rates, compounding uncertainty for investors already on edge.
2. Markets typically have recovered quickly
Although markets declined during volatile periods, they often bounced back quickly. Indeed, stock market returns are typically stronger after sharp declines. The average 12-month return immediately following a 15% or greater decline is 52%. That’s why it’s usually best to remain calm and stay invested.
3. Bear markets have been relatively short-lived
A long-term focus can help investors put bear markets in perspective. Since 1949, there have been 11 periods of 20%-or-greater declines in the S&P 500. Although the average 33% decline during these cycles is painful to endure, missing out on the average bull market’s 265% return could be far worse.
4. Bonds can offer balance when needed most
In periods of slowing economic growth, bonds often shine brightest. In fact, it’s the reason high-quality core bond funds are often the foundation of a classic 60% equities and 40% bonds portfolio. While the exact allocation may shift, a diversified portfolio is intended to generate attractive returns while reducing risk.
5. Staying the course has paid off for long-term investors
When markets are volatile, it’s hard to resist the urge to do something. Suggestions to stay the course offer little comfort when markets and emotions are spiraling. But in many cases, the best course of action has been none at all.
The lesson? Market declines can be painful, but rather than trying to time the market, investors would be wise to stay the course. To weather market volatility, they should seek diversification across stocks and bonds while periodically examining their risk tolerance for elevated volatility. Though it may feel like this time is different, markets have shown resilience throughout history when confronted by wars, pandemics and other crises.”
It’s more important than ever to stay invested. Time to get your second opinion! Schedule your free review.
For more graphs on other world events and how the markets were impacted, click here.
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