Editor's Note: This post was originally published in the March 2018 Edition of Odyssey NexGen Newsletter. Curious about Odyssey's NexGen program? Email [email protected] to learn more.
The first few months of 2018 have certainly started off with a bang. After a year of placid markets, we've seen volatility come back. In the 9-year bull market run for the S&P 500, the index has experienced 5 separate "corrections" of at least 10%, but less than 20%. The most recent correction occurred as of February 8th, when the S&P 500 declined 10.1% from its high this year. If market gyrations make you nervous, that's ok, but if big swings make you want to do something, DON'T.
Making emotionally-based decisions as a reaction to short-term market events is one of the fastest ways to derail your long-term investing strategy. That's because it's impossible to accurately time the financial markets. If you try to time your optimal market exit and entry points, you'll have to be correct twice to come out ahead; you must get out and back in at the right times. Can you with 100% certainty know that you'll be right, twice?
Investing with emotions often results in opting out at the worst time, when markets are falling, and buying back in at higher prices when markets begin to rise. That's the opposite of what you want to do - buy low and sell high. Every trade, whether it works or not, costs real money. The safest and potentially most rewarding investment tactic is a long-term one that requires patience, which for many proves to pay off in the end. If you have between 25-35 years until retirement, trying to time your trades to correspond with a potential market dip in the short term won't make much of an impact. By remaining invested and focusing on your long-term investment goals, you have an opportunity to buy additional shares at lower prices when stock prices drop, which helps to generate long-term portfolio growth. Most importantly, a long-term strategy is proven to help protect investor portfolios from market volatility over time.
The bottom line is: what goes down, must come up. Often when markets rebound (which they do), they've gained even higher ground than before. Successful investing does not mean chasing results or timing your entry or exit into the market. It's not timing the market that makes a difference, it's time in the market that matters.
Approved: AC - 3/14/18