Chief Retirement Strategist
Market volatility can make investing feel challenging and even daunting. The ups and downs of the market can be unsettling, especially for those clients who are new to investing or nearing retirement. However, understanding the nature of market fluctuations and maintaining a long-term perspective can help your clients stay the course and achieve their financial goals.
While volatility might not feel good, it’s important to remember that double-digit intra-year declines are typical. Historically, the average intra-year decline has been around 14%, yet annual returns were positive in 34 of the past 45 years. This demonstrates that despite short-term fluctuations, the market has a tendency to recover and grow over time.
The principle of time in the market
One of the key principles of successful investing is recognizing that it’s not about timing the market, but rather time in the market. Attempting to predict market movements and make short-term trades can be risky and often counterproductive. Market timing is extremely difficult, even for seasoned investors, because it requires more than just accurately predicting market peaks and knowing when to sell. A successful market timer must be correct twice: knowing when to sell and when to re-enter the market. The worst days in the market often occur very close to the best days—and missing out on those days’ gains can have grave consequences for their portfolio. In fact, if your client's missed the 10 best days in the market over the past two decades, their portfolio would have been cut in half.
The chart below highlights the importance of staying invested and not reacting impulsively to market volatility.
Impact of being out of the market
Source: J.P. Morgan Asset Management using data from Bloomberg. Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index. Data as of December 31, 2024.
Strategies for retirement planning
When in doubt, zoom out. Encouraging clients to take a step back and look at the bigger picture can provide a valuable perspective. Are they appropriately positioned for where they are in life? This question is crucial for tailoring investment strategies to individual circumstances and goals.
For those closer to retirement, it’s essential to ensure appropriate diversification across a mix of stocks and bonds, as well as across U.S. and international markets. Additionally, having enough savings on hand to cover shorter-term expenses can provide peace of mind during turbulent times.
If your clients are still years or decades away from retirement, continuing to fund their retirement plan can result in positive outcomes over the long term. Investing, as opposed to simply saving, can generate stronger outcomes over the course of decades. Target-date funds, which are designed for long-term investing across market cycles, can be a useful tool for a variety of retirement savers. Staying invested, especially if long-term goals haven’t changed, can produce a better retirement outcome.
In conclusion, while market volatility can be unsettling, helping your clients maintain a long-term perspective and stay committed to their investment strategy can help them navigate the ups and downs. By focusing on time in the market rather than timing the market, and ensuring one's portfolio is aligned with their life stage and goals, can work toward achieving financial security and a successful retirement.
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