Recession. Inflation. Bear markets. These are just a few of the terms that can strike fear into the heart of even the most experienced investor. And with good reason – over the past few years, we’ve twice seen firsthand how quickly the stock market can plunge, taking our hard-earned savings with it.

But while volatile markets can be scary, the market as a whole has tended to trend upwards. This is due to a number of factors, including human nature (we tend to be optimistic) and the fact that innovative companies continue to emerge.

S_P 500 Index - Price Graph

Historically, despite many periods of increased volatility, markets have remained resilient.

In this article, I’ll discuss the realities of investing in volatile markets and then provide some strategies to help you cope with the emotional roller coaster. So buckle up – it’s going to be a bumpy ride!

A Few Key Perspectives

Recession and inflation are two of the biggest fears for any investor. Recession can lead to a decline in the value of investments, and inflation can eat away at the purchasing power of money. As a result, it is essential for investors to be able to manage their emotions. When markets are booming, it can be tempting to invest more money than you can afford to lose, in the hope of making a quick profit. However, this can lead to financial ruin if the market then crashes. Similarly, when markets are in decline, it can be tempting to sell all of your investments in a panic. However, this can mean missing out on the rebound when the market eventually recovers. To be successful, investors need to be able to control their emotions and make decisions based on logic, not fear or greed.

While recessions are a natural part of the economic cycle, they can be difficult to weather. During a recession, businesses have to cut back on spending and people often lose their jobs. This can lead to a decrease in consumer spending, which can further hurt the economy. However, recessions usually don’t last very long. The bad times are usually followed by a period of economic expansion when businesses are doing well and people are able to find jobs. Inflation can also be a problem during an expansion, but it is usually not as severe as during a recession. Ultimately, while recessions can be difficult, they are usually short-lived and the good times usually last much longer than the bad times.

Length of recessions and expansions January 1902 to July 2021

The good times (economic expansion) usually last much longer than the bad times (economic recession).

Historical research has shown that stock markets tend to stabilize quickly following a sharp decline, and that the strongest returns often occur in the period following a downturn. Therefore, those who exit the markets for even a short period of time may miss out on great opportunities when the markets recover. For this reason, it is important to stay invested in the markets, even during times of uncertainty.

Value of $1000,000 invested in S_P 500 over 30 years

I’m Still Freaking Out – What Do I Do About It?!

Don’t Time the Market

Many investors believe that they can time the market by selling when it is high and buying when it is low. However, this is often easier said than done. The reality is that it is virtually impossible to predict when the market will rebound. As a result, trying to time the market can often lead to worse long-term investment performance than if you had simply stayed invested through the bad times. The best way to maximize your chances of success is to stay invested and let the market take its course.

Don’t Overconcentrate Your Investment Positions

When it comes to investing, diversification is key. This means diversifying your portfolio across different asset classes so that you’re not too exposed to any one particular type of investment. By diversifying, you can help to protect yourself from market volatility and achieve greater consistency in your returns. It’s important to remember that diversification is one of the key tenets of successful investing, so if you’re not taking advantage of it, you could be putting your portfolio at risk. Make sure you’re diversified and you could see the benefits in both the short and long term.

Keep Investing Incrementally

Dollar cost averaging is a technique that can be used to reduce the effects of price fluctuation. By investing a fixed sum of money on a regular basis, you will automatically buy more units when prices are low and fewer units when prices are high. Over time, this can help to average out the price fluctuations and reduce your overall costs. In current times, when investment markets are volatile, dollar cost averaging can be an excellent strategy to help protect your portfolio from losses. By investing regularly, you can avoid the temptation to try to time the market, which can often lead to buying high and selling low. Dollar cost averaging can help you build your portfolio slowly and steadily, ensuring that you always buy at a fair price.

Growth of a $10,000 investment, 189-2021

Staying the course is of the utmost importance during periods of volatility as it has historically enabled investors to fully recover from these periods and achieve their long-term investment goals.

There Is Always a Light at the End of the Tunnel

Despite the volatility in the markets, it is important to remember that they always recover in time. In fact, over the long term, stock markets have historically trended upwards. This means that by staying the course and not panicking during these times, investors are more likely to achieve their investment goals.

If you are feeling overwhelmed or would like guidance through these trying times, please do not hesitate to reach out. Our team at The St-Georges Group is here to help you navigate these waters and come out on top.

As a CI Assante Wealth Management firm, we help dentists, medical professionals, entrepreneurs and high-net-worth individuals increase their wealth. Our many wealth management strategies include investment planning, tax planning, insurance planning, and estate planning, to name a few.