The stock market has been volatile since the start of the year, with a brief recovery in July followed by a decline in August. Investors have been concerned about a sustained recession, as the S&P 500 and the Dow Jones Industrial Average have both fallen by more than 4%. While there is no specific number that indicates a fault, it is important to understand the context of the market. The S&P 500 stock index usually changes between -1% and 1% on any given day.
Any activity outside these parameters could be considered an active day in the stock market, for better or worse. The Federal Reserve's actions will likely continue to cause volatility in the markets. If you have opted for a “set it and forget it” strategy, such as investing in a retirement fund with a target date, diversification is already integrated. It is best to stand firm and trust that your wallet is ready to weather the storm.
You may experience some painful shocks in the short term, but this will help you avoid losses that your portfolio can't recover from. The average reduction during market downturns is 27%, and they tend to last 13 months on average. On average, it takes 27 months for stocks to return to their peaks after these periods of decline. This compares with an average recovery time of almost five years for the toughest bears.
It can be difficult to see your portfolio shrink in a year in which you may have fallen ill, grieved, or lost or changed jobs due to the COVID-19 pandemic. However, if you are investing for the long term, doing nothing is usually best. Time and time again throughout history, a foolproof approach to saving regularly during difficult market periods has rewarded investors in the end, sometimes to a greater extent than if markets had risen broadly. To learn more about the market outlook, Chief Investment Officer Tom Stevenson will share his views on the next quarter in the latest Investment Insights publication. The high-tech NASDAQ composite index (which includes about 3,000 common shares) and the Russell 2000 small-cap stock index fell to bear market position earlier in the year. While history can tell us how long declines, stock market corrections and bear markets usually last, no one gets a calendar announcement announcing the timing, nature and projected magnitude of future declines.
Investing in the stock market is inherently risky, but what contributes to long-term returns is the ability to overcome the unpleasant and continue investing for the final recovery. An additional concern going forward will be market fundamentals, such as corporate revenues and profits. Three days later, the index fell again by more than 1000 points, demonstrating the fragility of stock market recoveries in the current environment. Ideally, before diving into stocks, you should measure your risk tolerance or how much volatility you are willing to endure in exchange for a higher potential return.
