Markets Panic – Should You?
- U.S. stocks are off to a rough start in the fourth quarter, with both the S&P 500 and the Dow Jones Industrial Average (Dow) erasing year-to-date gains through October 24. Meanwhile, the technology-heavy Nasdaq Composite index has finally entered correction territory (i.e., a drop of 10% from its recent peak). Markets are being hit from many sides in October – rising interest rates in the United States, uncertainty over an upcoming U.S. election, trade war fears, and various tensions impacting corporate earnings in the U.S.
- While a market sell-off never feels good, volatility remains the natural course of investing and requires investors to focus on the fundamentals. In fact, studies by Fidelity show that, since 1920, the S&P 500 has on average experienced a 5% pullback three times a year, a 10% correction once a year, and a 20% bear market decline every three years. In spite of these regular corrections, markets have still generated positive returns over the long run.
- While bull markets don’t last forever, declines are generally temporary as well. Investors who understand that and have a plan tailored to their specific financial goals will experience less panic when markets sell off and avoid making the emotional mistakes that often derail their portfolios.