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Fear is Back
We have recently seen an uptick in volatility and fear. As you can see from this Fear & Greed Index, which represents what emotion is driving the market now, there has been an increase in fear.
As you can see from the chart below from J.P. Morgan, time in the markets is what matters. On the left, you will see what most investors focus on…the short term. Going back to 1950, in any given 1 year period, the S&P 500 was anywhere between -39% and +47%. That is quite a volatile swing. It’s no wonder that investors typically jump from the ship too early, and lock in permanent losses. This misbehaving is compounded by investors waiting on the sidelines in cash, while markets rapidly recover. This misbehaving means they buy high, sell low, and repeat.
Time In Markets Is Important
An intelligent investor will reflect on the right-hand side of the chart and realize that although in the short run, anything can happen, a disciplined long-term approach will smooth out the ups-and-downs, resulting in a potential for a greater chance to succeed. The problem is that the constant 24/7 media doesn’t help investors with their constant focus on fear, because let’s face it—fear sells. Even in the above example, having a hypothetical 50/50 portfolio of stocks and bonds over a 5-year rolling period didn’t produce a negative return. Will this chart repeat in the future? Probably not exactly, but having a long-term approach and diversified portfolio may give you a better chance of meeting your long-term goals than having a short-term mindset.Time in markets is important... not timing markets. Click To Tweet
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