Conversations about Volatility
June 22, 2023
Courtesy of SEI
Swings in financial markets can breed fear and cause rational investors to make irrational decisions. But remember, bouts of market volatility are normal. Don’t let them derail long-term goals.
Volatility isn’t Vulnerability
Throughout the past year, investors have dealt with an unusual confluence of events, including persistently high inflation, aggressive Federal Reserve rate hikes, a destabilizing war in Eastern Europe, and signs of slowing global growth. These factors really cranked up volatility in the stock and bond markets. Sometimes, we forget that volatile financial markets are not new or uncommon.
Resist the Emotional Roller Coaster
There will always be periods of tumult, but historically, markets have been resilient. And remember, downside volatility often creates compelling long-term opportunities.
MIND OVER MATTER
We often associate volatility with financial loss, but it’s normal and can often be managed through diversification and access to sound strategies.
Swings in financial markets breed fear and can cause a rational investor to make irrational decisions; however, markets have historically proven resilient time and again.
With proper guidance, awareness, and a goals-based strategy, market volatility can be less scary.
Don’t Let Volatility Scare You Off Course
Being hyperfocused on day-to-day portfolio valuations and wild swings in the markets can lead to destructive behavior. It’s better to keep calm, stay invested, and remain focused on long-term goals.
| Investment period: Dec. 31, 2001, to Dec. 31, 2022 | S&P 500 returns |
|---|---|
| Full-period return | 9.8% |
| Missing 10 best days | 5.6% |
| Missing 20 best days | 2.9% |
| Missing 30 best days | 0.8% |
| Missing 40 best days | -1.10% |
MIND OVER MATTER
Volatility can be particularly destructive to long-term goals if it prompts you to jump in and out of the markets.
Timing markets rarely pays off. Missing out on just a handful of the best days can seriously diminish long-term performance.
History has shown that the odds of achieving investment goals could potentially increase when you stay the course and your time horizon is longer.
Health Check
- A financial advisor can help keep you on track and avoid emotional and potentially destructive decisions.
- Consider reevaluating your overall risk tolerance. Honest discussions with an advisor might be illuminating and even prompt you to consider how “lower-volatility” or “stability” strategies may fit into your diversified investment portfolio.
- Don’t think that your lower-volatility strategies simply offer a binary choice between growth and volatility. There are ways to position for long-term capital appreciation using equities while still aiming for a lower volatility experience.
Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).
There are risks involved with investing, including loss of principal. There is no assurance the objectives discussed will be met. Diversification may
not protect against market risk. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.
Index returns are for illustrative purposes only and do not represent actual investment performance. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee
future results.
Your financial advisor is not affiliated with SEI or its subsidiaries.
© 2023 SEI® 230263.03
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