A few pointers can help ensure you do not endure a double drubbing during market turmoil.
In 2008, investors faced credit-risk fears, rising inflation, oil near $100 a barrel, and collapsing home prices. In 2022, investors again faced credit-risk fears, rising inflation, oil above $100, and Russia’s aggression. History does not necessarily repeat itself, but it often rhymes.
The effect was a double-digit decline in stock prices. Investors who exited markets in 2008-09 or March 2020 locked in steep losses and were often too nervous to return as prices rebounded.
Stocks Outperform Other Asset Classes
Investing in stocks requires discipline through good times and bad. No formula consistently times the bottom and top. Attempts at timing frequently lead to buying high and selling low. Warren Buffett advised being greedy when others are fearful and fearful when others are greedy.
Higher Returns Come with Higher Volatility
Stock investors have historically been compensated for enduring higher volatility. Portfolios should reflect each investor’s financial and personal circumstances. Rebalance regularly, but do not buy or sell in panic. If fundamentals are little changed, lower prices make stocks more attractive, not less.
Diversification Remains Key
Proper asset allocation helps smooth returns over time. During a massive selloff, many asset classes can weaken together, but the long-term benefits of diversification remain.
Avoid Emotional Reactions
A diversified core portfolio should give you the best chance of achieving goals that matter to you. Stick to the plan and rebalance. Peter Lynch said the key to making money in stocks is not getting scared out of them.
-Paul R. Rossi, CFA