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During periods of volatility in the stock market 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.
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 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.
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 mean return over all rolling 10-year periods from 1937 to 2017 was 10.43%.The bottom line? A long-term perspective can help you prevail through challenging times.
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.
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.
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 market 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.
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Investment Advisory Representatives offer advisory products and services through Longleaf Advisory Services, LLC, a Registered Investment Advisor.
171 Lott Court
West Columbia, SC 29169
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Investment Advisory Representatives offer advisory products and services through Longleaf Advisory Services, LLC, a Registered Investment Advisor.