When we posted our blog article titled “Questions to Ask Your Financial Advisor During Market
Volatility,” on April 1, 2020, the DOW closed at 23,510. As we write this article on September 1,
2020, the DJI closed at 28,969. That’s a swing of over 5,000 points, or an equivalent of nearly
30% return on the Dow, 38% for the S&P (GSPC) and an amazing 56% on the NASDQ (IXIC), in
just five months, and “it’s an Election Year!”.
The recent daily ups and downs in the market have created a lot of sleepless nights for
investors, particularly those looking at a shorter time horizon until retirement. And the anxiety of
the COVID crisis has made matters worse. However, now is not the time to panic or make any
emotional decisions about your portfolio.
It is a well-known fact that long-term market investors outperform investors who let emotions take over during volatile markets. It can be difficult, if not impossible, to recoup losses from a decision to sell. And, timing is a tricky thing when it comes to the markets. During a downturn, it is difficult to know when you should retreat and when you should begin reinvesting. You need to be able to determine if a particular investment hit the bottom. Unless you have access to information otherwise yet unknown to most of the public, market timing is a difficult task at best.
Historical data shows that stocks have outperformed all other asset classes, such as bonds over
the long-term. A recent article from CNBC, noted that in the decade after the market crash in
2009, the S & P 500 delivered an annualized 10-year return of 17.8%. If you take a longer view
of the market performance, since 1928, that same index averaged 9.5% per year.
So, what do these numbers illustrate? Investing for the long-term is the only way you can mitigate short-term losses. In fact, market downturns should be viewed as a buying opportunity. When market dips occur, smart investors continue to reinvest dividends to take advantage of the lower stock prices. The upside to buying and holding stocks for the long-term can be substantial. We have all heard stories about the investment returns achieved by getting in on the ground floor of a growth company and holding onto the investment. Apple Incorporated is a prime example. If you invested $1,000 in Amazon when they first went public in 1997, that same investment would be worth more than $1.5 million today.*
In a recent interview with Ric Edelman, finance writer and syndicated radio show host, Edelman describes the psychology that plays into our poor investing decisions. He says it is human nature to want to buy when we are excited and sell when we are scared. We need to realize we are emotional creatures and not let our emotions get the best of us in times of market volatility. Instead, we should seek guidance and feedback from an unbiased source, often a financial advisor, who can analyze the implications of any transactions and work with you to build a more secure future.
At Kirwan Benefits & Investments and Haddon Planning Group, we are here to help you do just that. With over 50 years of combined experience, we have helped our clients navigate market volatility’s choppy waters. We welcome the opportunity to review your current portfolio and make recommendations based on analysis not emotions. We hope you will give us a call.