During a year like 2022, it's understandable to think about changing your investment strategy. But remember that your strategy should reflect your goals, time horizon, and risk tolerance. More importantly, it should have anticipated there would be periods of market volatility.
Timing the markets rarely works.
Trying to time the markets to avoid the downside while gaining from the upside is challenging, even for professional investors.
Trying to time the markets to avoid the downside while gaining from the upside is challenging, even for professional investors.
Here's a real-world example. According to a study by J.P. Morgan, a $10,000 investment in the S&P 500 on January 1, 2002, grew to $61,685 by December 31, 2021. However, missing out on just the 10 best days over those 20 years, the value would have been cut by more than half, to $28,260. Miss the best 20 days, and the value would drop to only $16,804. Think of the impact of those lower returns on a retirement nest egg or other financial goals.1
Performance of $10,000 invested in the S&P 500 between January 1, 2002 and December 31, 20211
Source: J.P. Morgan Asset Management, 2022. Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Fees or operating expenses were not considered in the illustration.
Market timing is so hard because some of the biggest gains for stocks happen when you would least expect it, while some of the worst days occur when everything seems to be going great. We would all love to miss the worst market days, but it is nearly impossible to avoid them and still capture the best ones.2
Stick with your strategy
Remember, don't let short-term market moves distract you from your carefully crafted financial strategy. Keep your emotions in check when markets turn volatile and stay focused on your overall investing approach.
In the meantime, please give us a call or send an email to discuss what's going on with the financial markets. We look forward to hearing from you.
1 Investing involves risks, and investment decisions should be based on your goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
2 SeekingAlpha.com, August 17, 2022