Invest for success during market volatility.
Market volatility refers to market movement—whether up or down. Whenever the market does anything dramatic, your first impulse may be to react. But even in an up market, this can hurt you. As you’ll see, often the market will correct itself and your best course of action may just be a little patience and a long-term investing mindset.
A tale of two investors
Timing the market would be a great strategy, if you had a crystal ball. But in reality, this can be incredibly hard to do. All right, but how can you be sure?
Let’s take a look at these two hypothetical investors.
Sarah is an investor who rides the market out. John is an investor who attempts to time it, selling and buying at will.
Chart representing hypothetical market performance over time. The market has its ups and downs. After a dramatic drop, we join our investors:
Sarah leaves her money in the market. John made an educated guess on how far the market will dip, and jumped out.
The market continues to fluctuate, first dipping more, then recovering, and after that, continuing to climb.
By the time John decides to buy back in, he missed the drop, but also the recovery period. This means he lost in profits as well!
At a point in the future, both Sarah and John’s savings have been affected by subsequent market fluctuations, but even though both of their investments have increased in value, John’s savings are lower than Sarah’s.
In the long run it would have been better for John to endure the market swings like Sarah had.
Historically, the market has always recovered.
All right, but how can you be sure?
Given enough time, the market has historically recovered from its crashes. While recovery time frame can vary, this knowledge can help you remain cool-headed when others may be panicking.
- 1973: The market was down 42.6% in 21 months and recovered in 21 months
- 1990: The market was down 14.7% in 5 months but recovered within 4 months
- 2008: The market was down 50.9% in 16 months and recovered in 37 months
Just remember, keep your eye on the long-term prize and keep your emotions in check, and you could be on track to a greater retirement future.
Disclosures
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Downturns are defined by a time period when the stock market value declined by 10% or more from its peak. Source: Morningstar, 2014 (All Rights Reserved).
All investing involves various risks—including the possible loss of principal. It is possible to lose money by investing in securities. This material is intended to provide information only.
This material is not intended as advice or recommendation about investing or managing your retirement savings. By sharing this information, Prudential Retirement® is not acting as your fiduciary as defined by the Department of Labor or otherwise. If you need investment advice, please consult with a qualified professional. Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or its affiliates. PRIAC is a Prudential Financial company.
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