As a patient investor, you’ll understand that the rewards for your diligence are won over time. You’re willing to give up potential extra returns because you understand the importance of balance – having bonds in your portfolio because they help absorb the blow when the shares in your portfolio take a hit. You’re in it for the long run.
So, what do you do when the markets seem to turn against you? In January, I wrote about stock markets that had fluctuated wildly even in the course of a single trading day – and offered several reasons to expect more volatility ahead.
What do you do when those days of markets falling and then rising give way to markets falling and then falling some more? You’re the same investor, with the same goals and the same long-term view. You haven’t changed, but have the markets? You may fear they’ll keep changing, and not for the better. And they might – but not forever.
Why we look to the long term
A new dimension of risk has entered the financial markets with an escalating conflict in Ukraine. This adds further pressure to markets when they were already dealing with brisk inflation and preparing for an expected cycle of interest rate hikes from most of the world’s central banks.
We know, however, that stock markets have historically been resilient to geopolitical risks over the long-term, much as markets have always been resilient in the face of other risks. We expect the markets to work themselves out, reaching new heights over time and at varying paces. These rises will sometimes be punctuated by sharp declines. This is how it works.
So now is not the time to abandon your strategy. Now is the time to take it all in with a deep breath, knowing that this day would come – and knowing that it will pass. I wish I could tell you when it will pass. That, unfortunately, is not how it works.
In the meantime, if the markets throw your mix of stocks and bonds out of kilter, you may have a good opportunity to restore them to your desired state. Rebalancing is a useful strategy for ensuring that your asset allocation continues to suit your goals.
Our recent annual economic and market outlook offers context to the economic challenges ahead and may help investors to continue thinking long-term outlook. It highlights the delicate relationship between economic stimulus and economic self-sufficiency.
Anxious investors should also remember Vanguard’s principles for investing success. It’s an enduring story about maintaining perspective, tuning out the day-to-day noise that can lead to regrettable decisions, being true to your goals, and embracing the power of the long term. It’s a story about you.
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