While stocks historically have been volatile, especially in response to major domestic or world
events, a review of market data show that their prices in many cases have returned to less volatile
patterns over longer time periods. That can be good news for long-term investors.
Uneven worldwide economic growth, the uncertainty caused
by government fiscal and monetary policies, and political
unrest around the world often prompt an increase in market
volatility that can unsettle many investors.
In the stock market, volatility typically refers to the size and
frequency of price movements. In general, higher volatility
means a wider range of potential gains and losses and the
possibility of sharp price moves over short time periods.
An analysis of market data beginning with the years just
prior to the 1929 stock market crash shows that periods of
volatile price movements have not been unusual. Volatility
historically has increased during times of major global events
or economic disruption. It then gradually has declined for
a period of time to what might be considered more normal
levels, often after the triggering issues are resolved.
Cost of missing the market
Some people believe investing is a matter of timing. They
say it’s best to invest heavily in stocks when the market is
going up, then get out when the market starts going down.
But there’s a problem with that strategy: Even the smartest
investment professionals can’t accurately predict the exact
timing of such market moves.
Long-term investment success is more likely to be the result
of a consistent approach, based on time in the market — not
market timing. For example, selling when markets decline
can put investors on the sidelines when stocks change
direction. Turnarounds can happen quickly and typically
have been strong in their early stages. Missing even a few of
the stock market’s best single-day performances could have a
significant effect on an investment portfolio.
Value of an investment plan
History shows that it’s rare for the stock market to have two
bad years in a row and even more rare to record three bad years
in a row. When the market has recovered from downturns, it
historically has done so with powerful rallies. In addition,
bull markets historically have lasted three times longer than
Even in the worst 20-year period the stock market has ever
experienced — 1928 to 1948 — the S&P 500 Index posted an
average annual gain of 0.55%. While that is a modest amount,
remember that those two decades included the Crash of 1929
and the Great Depression of the 1930s, when unemployment
soared to 25%, U.S. gross domestic product plunged by more
than 30% and land values plummeted more than 50%. Despite
the economic challenges of those difficult years, a patient and
committed investor could have had a positive return on money
invested in the stock market.
Overall, history shows that patient investors who remain focused
on the long term may withstand turbulent periods and take
advantage of the opportunities that global change can bring.
Past performance is not a guarantee of future results. The opinions expressed in this article are those of Ivy Investment Management Company and are not meant to predict or project the future performance of any
investment product. The opinions are current through August 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided
as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on
an investor’s specific objectives, financial needs, risk tolerance and time horizon. Investment return and principal value will fluctuate and it is possible to lose money by investing.
Investment return and principal value will fluctuate, and it is possible to lose money by investing. A regular, long-term investment plan does not ensure a profit or protect against loss in declining markets, and involves
continuous investing regardless of fluctuating price levels. Investors establishing an investment plan should consider their ability to continue investing through periods of fluctuating market conditions.