You Shouldn't Worry About Short-term Volatility

10 October 2019
Michele Ferrario
Co-founder and CEO

Markets react in unpredictable ways to company-specific news, geopolitical events, and more. Remember when Trump started a trade war with China in 2019 and the COVID-19 market crash? And today, we're seeing yet another example with China's stocks falling.  Market reactions lead to inevitable ups and downs, yet reading into these short-sighted swings as anything more than natural only distracts investors from their long-term investment plans.

The short-term ups and downs are all part of earning value through investing. It's not a secret that the markets will always go up in the long term, and the fact that they always go up is exactly why it’s crucial that you keep your emotions out of investing, and that you stick to your plan.

There will be times that you log in and see your investments doing well, but this doesn’t mean you can abandon your monthly investment plan and put more money in! You’ll be buying high, and then you’ll see inflated losses later on.

And when you log in and see your investments not doing as well as you’d like at that given time, that's also not the time to get nervous and abandon your monthly investment plan just because you fear that you’re losing too much money. It’s in times such as these that it’s cheap to buy.

Keeping your head down and sticking to your plan even despite market volatility really does pay off. Not convinced? Let’s zoom in to a short-term period of 6 months in the S&P 500.

6 months of the S&P 500

Ok, now, let's zoom out to 15 years.

15 years of the S&P 500

It doesn't take an economics degree to see that the market averages upward in the long term even despite having short-term volatility along the way. This is why you need to stick to your investment plan to catch and ride that wave. In other words, don’t make emotional decisions.

So, whenever you experience a sudden increase or sudden decrease, remember to think about the big picture, and don’t get too excited, or too upset.

If you're still feeling uneasy, then chances are that you've selected a risk level that's beyond your comfort level. Our investment framework takes a long-term view on maximising your returns while simulateously minimising your risk in a given economic regime. In doing so, it inherently can withstand the natural ups and downs by experiencing less drastic drawdowns than other investment solutions that put your money at risk in an attempt to earn more. And, if your objective is to take high risk to earn high returns, remember that that approach is only reliable in long-term investments.

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