New York Life composed an excellent infographic regarding volatility and staying rational as an investor. One of the largest risks an investor faces is making an irrational decision while thinking they are still being rationale, often due to increased volatility.
Page 2 is a perfect illustration of the old adage “A picture is worth a thousand words”. As you can see, the S&P500 can have short, severe downturns. More important though, is that the market has always recovered and sometimes quicker than investors anticipate. Attempting to time the market by selling during the downturn can lead to catastrophic losses, as investors often invest back in after much of the recovery has taken place, ultimately leading to a net loss in their portfolio in addition to the grief caused all along the way. Reference Page 5 for an example of how this often plays out.
Page 3 shows that although it is uncomfortable experiencing large downturns, the following 12 months have often seen explosive gains and notably more than what the preceding downturns were.
Page 6 is one of my favorite graphs, as it illustrates well the large swings that equity investors have faced in a prior 20-year period. The magnitude or size of the volatility cannot be denied, yet the positive returns are greater than the negative returns in aggregate – leading to a hearty average positive return over that 20-year period. I believe if one can keep these expected swings in context, it can help increase the chances that an investor stays rational during volatile times and ultimately lead to their future success in obtaining their financial goals.
New York Life composed an excellent infographic regarding volatility and staying rational as an investor. One of the largest risks an investor faces is making an irrational decision while thinking they are still being rationale, often due to increased volatility.
Page 2 is a perfect illustration of the old adage “A picture is worth a thousand words”. As you can see, the S&P500 can have short, severe downturns. More important though, is that the market has always recovered and sometimes quicker than investors anticipate. Attempting to time the market by selling during the downturn can lead to catastrophic losses, as investors often invest back in after much of the recovery has taken place, ultimately leading to a net loss in their portfolio in addition to the grief caused all along the way. Reference Page 5 for an example of how this often plays out.
Page 3 shows that although it is uncomfortable experiencing large downturns, the following 12 months have often seen explosive gains and notably more than what the preceding downturns were.
Page 6 is one of my favorite graphs, as it illustrates well the large swings that equity investors have faced in a prior 20-year period. The magnitude or size of the volatility cannot be denied, yet the positive returns are greater than the negative returns in aggregate – leading to a hearty average positive return over that 20-year period. I believe if one can keep these expected swings in context, it can help increase the chances that an investor stays rational during volatile times and ultimately lead to their future success in obtaining their financial goals.
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