In a Volatile Market, Your
Fear is Rational. Your Response
Should Be Too.
In an economic downturn or global crisis, our financial and personal lives interweave in complicated ways, bringing moments that are both challenging and emotional. As an investor, it’s important to not let fear cloud your judgment. Instead, stay focused on the long term.

In uncertain times, turning to history can help make the path forward a little clearer. So let’s look at how a portfolio would have performed over 40 years based on an investor’s response to three crises.

Choosing the Right Path

Below are three typical paths that an investor might have taken during significant downturns. Each direction led to starkly different results. An investor started with $100 and contributed $5,000 annually to their savings over 40 years. When the S&P 500 Index dropped 30%, their reaction was to ...

Panic and Pull

Panic mode set in. They sold their investments and put their money in cash for good.


When you divest during a crisis, you’re likely to sell your stocks at a lower value. On top of that, your money won't work for you when the market does come back. You may be removing investment risk, but you are introducing a new risk: inflation, which can erode your purchasing power over time.

React and Wait

Trying to time the market, they pulled out of their investments and waited until market volatility fell back toward normal levels.


The problem is that investors tend to enter and exit the markets at inopportune times, selling when asset values are low and significantly increasing the likelihood that some of the best days in the market will be missed.

Stay Invested

Resolute, they tried their best not to pay attention to the daily ups and downs and instead remained fully invested.


It seems counterintuitive, but even when markets are down, history suggests that staying put and continuing to invest in good times and bad garners the best results.

Let History Be Your Guide

On Black Monday in 1987, the US stock market dropped by 23% in a single day.

1991-1999 DOT-COM BUBBLE

During the rise of the internet, many tech companies were overvalued—causing a bear market.


The Mortgage Crisis helped trigger the most severe economic meltdown since the Great Depression.

The Results of Each Path
Hypothetical growth of $100 portfolio with $5,000 annual savings
  • Panic and Pull
  • React and Wait
  • Stay Invested
  • Equity Bear Market

Historically, the market has always bounced back, but that doesn’t mean the impacts aren’t real and long lasting. However, it’s important to see the big picture and act rationally. But also, know that you’re not alone—a financial professional can help you keep your emotions in check so you can make better choices for your financial future.

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Source Info and Disclosures — Portfolio value is calculated using weighted average return of respective asset classes. Asset classes used in portfolio are cash and equity. Returns for these asset classes are estimated based on representative indeces (Cash: U.S. Treasury three-month Treasury; Equity: S&P 500 Index). Investment strategies used are: Panic and Pull: Portfolio starts with 100% equity investment; Moves 100% to cash if drawdown >=30%; never moves back to equities. React and Wait: Portfolio starts with 100% equity investment; moves 100% to cash if drawdown >=30%; Moves 100% back to equities when 12-month realized volatility <=20%. Stay Invested: Portfolio starts with 100% equity investment; allocations do not change for entire investment horizon.

Equity Bear Markets:
Black Monday: October 1987-September 1988
Dot-Com Bubble: March 2001-October 2003
Global Financial Crisis: December 2007-June 2009
Past performance does not guarantee future results. Indices are unmanaged and are not available for direct investment.
This is a hypothetical illustration; actual results may vary.

Any type of continuous or periodic investment plan does not assure a profit and does not protect against loss in declining markets. Since such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities, the investor should consider his/her financial ability to continue his/her purchases through periods of low price levels.

© 2020 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC#3073782 (5/2020)