In this article, we discuss three simple principles that can help investors maintain this balance: keeping market volatility in perspective, focusing on longer investment time horizons and maintaining portfolio discipline.
Market volatility has begun to increase after several years of calm. Investors should stay focused on long-term market fundamentals instead of short-term news.
The volatile and asymmetric returns that are experienced on a daily basis are smoothed over during monthly and annual periods. Expanding the investment holding period over years and decades has historically improved the risk/return profile of an investor’s portfolio.
Diversified, regularly rebalanced portfolios have typically resulted in higher Sharpe ratios than other equity asset classes over 10-, 15- and 20-year horizons.