Vanguard: How to Navigate Through Market Volatility

Global markets have turned volatile in recent weeks. Earlier this month when US markets crashed for a few days market experts were out in full force saying rising interest rate, valuations, etc. were the reasons for the sudden change in the direction of the market. Some simply said that markets were due for a correction after a long bull run. Amid all these noises and distractions many investors may be worried on what they should do in times like these.

According to an article at Vanguard UK, downturns in the market are not rare and a typical investor will experience such events many during the long-term. From the article:

It’s important to remember that corrections and bear markets are not unusual. Research by Vanguard’s Investment Strategy Group shows that since 1980, globally significant market events such as corrections or bear markets have happened about every two years. The typical investor will have to endure many such events over his or her lifetime.

Market downturns aren’t rare

Market downturns aren't rare

Source: Vanguard analysis based on the MSCI World Index from 1 January 1980 through 31 December 1987, and the MSCI AC World Index thereafter. Both indices are denominated in US dollars. Our count of corrections excludes those that turned into bear markets. We count corrections that occurred after a bear market has recovered from its trough even if stock prices haven’t yet reached their previous peak.

It’s also important to put volatility into historical context. Market uncertainty can cause investors to diverge from their asset allocation plans as they try to insulate themselves against turmoil. But trying to time these events can lead to costly mistakes. In many cases, timing the market for re-entry simply results in selling low and buying high.

Many downturns barely register when taking a long-term perspective

Many downturns barely register when taking a long-term perspective

Note: Intraday volatility is calculated as daily range of trading prices [(high – low) / opening price] for the S&P 500 Index. Sources: Vanguard calculations, using data from Yahoo! Finance.

Indeed, the markets’ best and worst trading days have often happened close together. In fact, the worst trading days actually happened in years with positive performance.

The markets’ worst days and best days are often close together

The markets' worst days and best days are often close together


Source: How to navigate through market volatility, Vanguard UK, Feb 7, 2018

The article notes some strategies for investors to navigate uncertain markets. Readers may want to read the full article at Vanguard site.

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