Olde Hornet
Well-Known Member
http://www.schwab.com/insights/stocks/stocks-and-market-volatility
If there’s one thing that makes investors nervous, it’s market volatility. Wild swings in stock prices can tug at our emotions and tempt us to make hasty decisions that run counter to our goals. And when things get really bumpy, as they did earlier this year, some investors might be tempted to pull out of the market altogether.
But keeping even the worst bouts of turbulence in perspective can be good for both your nerves and your portfolio. Yes, stocks tend to be riskier than other investments, but they also have the potential for higher reward. In fact, research shows that stocks tend to outperform other asset classes over the long term, and they far outpace inflation, as well. From 1970 through 2014, for example, large-cap stocks generated annual compounded returns of 10.5%, while bonds generated returns of 7.9% and inflation averaged 4.2%.1 Importantly, that time frame included two extremely challenging periods for stocks: the tech bubble and subsequent bear market of the early 2000s and the Great Recession of 2008–2009.
Of course, you can’t take advantage of such gains if you’re not invested—and that means staying invested during periods of increased volatility, however counterintuitive that may sound. In fact, we’ve run comparisons between hypothetical portfolios and found that people who stuck to a regular investment plan even when markets were going haywire enjoyed greater returns than those who pulled out when things got rough.2
If there’s one thing that makes investors nervous, it’s market volatility. Wild swings in stock prices can tug at our emotions and tempt us to make hasty decisions that run counter to our goals. And when things get really bumpy, as they did earlier this year, some investors might be tempted to pull out of the market altogether.
But keeping even the worst bouts of turbulence in perspective can be good for both your nerves and your portfolio. Yes, stocks tend to be riskier than other investments, but they also have the potential for higher reward. In fact, research shows that stocks tend to outperform other asset classes over the long term, and they far outpace inflation, as well. From 1970 through 2014, for example, large-cap stocks generated annual compounded returns of 10.5%, while bonds generated returns of 7.9% and inflation averaged 4.2%.1 Importantly, that time frame included two extremely challenging periods for stocks: the tech bubble and subsequent bear market of the early 2000s and the Great Recession of 2008–2009.
Of course, you can’t take advantage of such gains if you’re not invested—and that means staying invested during periods of increased volatility, however counterintuitive that may sound. In fact, we’ve run comparisons between hypothetical portfolios and found that people who stuck to a regular investment plan even when markets were going haywire enjoyed greater returns than those who pulled out when things got rough.2