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WEALTH MANAGEMENT • JUNE 17, 2020

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.

ACCUMULATED
PORTFOLIO VALUE

$412,400

SHOW RESULTS

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.

ACCUMULATED
PORTFOLIO VALUE

$1,887,655

SHOW RESULTS

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.

ACCUMULATED
PORTFOLIO VALUE

$2,572,075

SHOW RESULTS

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.

SHOW RESULTS

Let History Be Your Guide

1987 BLACK MONDAY

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.

2007 GLOBAL MORTGAGE CRISIS

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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