By: Laura Walton AFC®
has fallen 10% in the last week as measured by the Dow Jones Industrial Average. The news is better this morning; the market opened up 300+ points. This is what we should expect from the market – volatility – but volatility can be hard to watch when it affects your investments.
If you’ve attended our Investing Series, you know that we spend a lot of time talking about investor behavior. Bob Swift tells the story of Mary, a woman who invested in Vanguard’s Wellington Fund in 1990 and let it ride…through the Black Monday of October 19, 1987, the Dotcom crash of 2001, and the financial crisis of 2008 when the market dropped by half not to mention the several world crisis’s over those 25 years. Her result? An average gain of 7.4%.
As you’ll hear in this clip from NPR, volatility is a critical component of the market. With volatility comes risk and higher risk means higher returns – the very reason we invest in the market.
History shows, as in Mary’s case, that the market’s volatile reaction to events evens out over time – the Wellington Fund returned 7.4% over those 25 years despite wild ups and downs. Statistics show that the risk of a negative return drops dramatically with the length of time your investments are held – review our May 7th blog. We also know that missing the 25 best single days of the S&P 500 Index between 1970 and 2013 would have reduced your return by half, from 10.40% to 5.17% – see below:
Remember – your best defense is a long-term investment plan designed around your ability to save, your willingness to ride the market’s ups and downs and your retirement needs. Remember as well that the TCI Foundation is always available as a resource.