A Guide to Stock Market Fluctuations: Keys to Prevailing Through Stock Market Declines

During periods of volatility and stock market fluctuations, you may have doubts about your long-term investment strategy. Here are five tips to help you avoid common pitfalls and stay on track toward achieving your financial goals.

1. Declines have been common and temporary occurrences.

Problem: Declines can cause imprudent behavior by filling investors with dread and panic.

Solution: Realize that declines are inevitable and have not lasted forever.

History has shown that stock market fluctuations and declines are a natural part of investing. While declines have varied in intensity and frequency, they have been somewhat regular events. It may also reassure you to know that the market has always recovered from declines. Although past results don’t guarantee future results, remembering that downturns have been temporary may help assuage your fears.

The bottom line?

Accept declines as a normal part of the investment cycle.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

2. Proper perspective can help you remain calm.

Problem: Studies show that people place too much emphasis on recent events and disregard long-term realities.

Solution: Even amid a market downturn, remember that stocks have rewarded investors over time.

The stock market has a reassuring history of recoveries. After hitting lows in August 1939 and September 1974, the Standard & Poor’s 500 Composite Index bounced back strong, averaging annual total returns of more than 15% over the next 10 rolling 10-year periods in both cases.

Long-term investors have been rewarded. Even including downturns, the S&P 500’s average return over all rolling 10-year periods from 1937 to 2019 was 10.47%.

The bottom line?

A long-term perspective can help you prevail through challenging times.

3. Don’t try to time the market.

Problem: Research has shown that losses feel twice as bad as gains feel good.

Solution: Keep in mind that fleeing the market to reduce losses could mean losing out on gains when stocks recover.

The market has shown resilience. Every S&P 500 downturn of about 15% or more since the 1930s has been followed by a recovery. Recoveries have been strong. Returns in the first year after the five biggest market declines since 1929 ranged from 36.16% to 137.60% and averaged 70.95%.

Over a longer term, the average value of an investment more than doubled over the five years after each market low. Don’t miss out on potential market rebounds. Although recoveries aren’t guaranteed, taking your money out of the market during declines means that if you don’t get back in at the right time, you’ll miss the full benefit of market recoveries.

The bottom line?

Consider staying invested — and don’t try to time the market.

4. Capital Group, home of American Funds, has helped investors prevail through market declines.

Problem: Market indexes don’t tell the whole story and can needlessly alarm investors.

Solution: Consider investing in funds run by investment managers who have proven long-term track records.

Certain skilled investment managers have superior long-term track records. American Funds is among those proven managers with a long history of success, stemming from our long-term perspective and our emphasis on producing results that are less volatile than the broad market. Equity funds have beaten their Lipper peer indexes in 92% of 10-year periods and 99% of 20-year periods.* Fixed income funds have helped investors achieve diversification through attention to correlation between bonds and equities.† These periods include good times and bad.

The bottom line?

Invest for the long term with an investment manager that has a proven track record of success — in downturns as well as in bull markets.

5. Emotions can cloud your judgment.

Problem: Investors often make poor decisions when they let their emotions take over.

Solution: Stay focused on your long-term goals and carefully consider your options.

Have you heard the investment adage, “buy low, sell high”? Strong emotions during stock market fluctuations and swings can tempt you to do the opposite — buy high and sell low. You may also feel that doing something — anything — during a downturn is better than doing nothing. Although inaction might seem counterintuitive, staying invested in the market could be the better choice.

The bottom line?

Avoid making rash decisions based on emotions.

Strategies to get through turbulent times

It’s difficult to see the value of your investments fall during trying times with stock market fluctuations. But during challenging times, try to keep some fundamental investing principles in mind:

Look beyond the headlines

Sensational news headlines are meant to grab your attention, but it can be dangerous to let the media influence your investment decisions. Ignore the noise and stay focused on your goals.

Don’t forget history

Market declines are part of the economic cycle. Historically, recoveries have followed downturns.

Maintain a diversified portfolio

Different investments may go up and down at different times. Spreading your money over a variety of investment types and regions can help reduce volatility in your overall portfolio.

Don’t try to time the market

No one knows the perfect times to get in and out of the market. Consider holding quality investments with the potential to rise in value over the long term.

Invest regularly, even when the market is falling

Instead of fearing down markets, think of them as opportunities to invest at lower prices.

Keep in touch with your financial professional.

Your financial advisor can help you avoid making decisions that could jeopardize your long-term investment goals, which often remain unchanged during market declines.

My name is Kim Holland-Lyon, I have studied and worked in the financial planning industry for many years educating individuals through numerous programs to enhance their financial intelligence and practices, including estate planning. I am a SmartVestor investing pro. I hold several securities licenses and other certifications and designations to include Life, Health, Annuity, Long-Term Care, Identity Theft, Estate Planning and Real Estate. All of this knowledge enables me to offer comprehensive financial planning for my clients to help them prepare for financial independence and management of their investment portfolios.

Whether you have long term financial goals or short term financial goals, please contact me directly at 561-302-5153 or coachkimmyelp@gmail.com.

Kim lives in West Palm Beach, Florida & travels serving her clients all over the US which includes AL, AZ, CA, FL, CT, IA, MN, ND, NJ, NY, SD, TX, VT, WI, WA & WI while enjoying her life serving both Rural and Urban communities. Intrigrating agricultural values,  with traditional businesses practices educating families with their financial needs.  With Kim’s passion for ministry, gardening and other life skills on living off the land & creating wealth: Her brand and mission statement is:

 “In God’s Economy… From High Heels to Tractor Wheels.”  

Article Credit: Joel Hanson, AIF | March 13, 2020