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Responding to Market Volatility

Responding to Market Volatility

March 31, 2021
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When markets experience periods of intense volatility, it is natural to react with the impulse to "do something" to stop the swings of fortune (or misfortune, as the case may be). But many times, this is where harmful mistakes can be made.

About this time last year, the markets were experiencing a pretty drastic downward drop. Many investors were tempted to exit the markets and seek safety. How well would this strategy have worked out?

Below is a graphic showing the drop in value experienced by various asset classes and their subsequent rise from the bottom point. I think the case is clear: staying put and riding out the storm, especially in long term accounts, is usually the best decision.

Drawdown and Recovery