As the conflict between Russia and Ukraine continues to send shock waves through the markets, many investors may be questioning what, if anything, they should be doing next. In most cases, the “doing next” part involves getting out of the market. That strategy may have negative consequences in the future. Staying the course, although challenging at times, has proven to be a more prudent strategy. Selling when the markets are low locks in losses and takes away the opportunity to take advantage of future rebounds in the market. According to data from J.P. Morgan Asset Management, the market’s worst days tend to be followed by its best days. Allow me to illustrate this point.
The two worst times our markets have experienced in the last 20 years were the financial crisis of 08/09 and the start of the Covid-19 pandemic. As it turns out, according to J.P. Morgan’s analysis, the 10 best days of the S&P 500 over the past 20 years occurred after big declines amid the 08’-09’ financial crisis and the 2020 pullback during the onset of the pandemic. According to their research, if a client had invested $10,000 on January 1, 2002, they would have a balance of $61,685 if they stayed the course through 12/31/2021. If instead, they missed the market’s 10 best days during that time, they would have $28,260. (1) That is a remarkable difference.
Staying the course when the market goes through these cycles can present other benefits and opportunities as well. Retirement savers can take advantage of market dips by automatically investing on a monthly basis. This can give retirement savers discipline to continue to invest and stay the course through volatile markets. Another helpful tool to allow investors to stay the course is having enough cash on hand for emergencies and cash needs that may come up. Having sufficient cash on hand allows for independence from having to sell assets at inopportune times. Of course, every situation is different and requires its own unique set-up.
Allen Minassian
1. https://www.cnbc.com/2021/03/24/this-chart-shows-why-investors-should-never-try-to-time-the-stock-market.html