The most successful stock market investors are investing for the long term — planning for retirement, college, or other large objectives. Those big-picture goals may not change, but if the last few months have taught us anything, it's that short-term circumstances can shift overnight.
That's why it's important to develop an investing plan that can weather the unexpected and keep you on track to accomplish those goals, even if you have to make some adjustments along the way.
"We have all heard the sayings before: It's a marathon, not a sprint. Keep calm and carry on. Stay the course," says certified financial planner Chris Briscoe, a vice president and wealth advisor at Girard. "And although these pieces of advice are easy to question during times of uncertainty, these are all tried and true. Remember that investing for the long term is just that. Long term."
To build a lasting investment plan, keep these three principles in mind.
Maintaining a diverse portfolio is important in any market, but especially in a volatile one. That's because while some areas of the market may suffer, if you have your investments spread across different kinds of assets and many sectors and geographic regions, you're likely to remain invested in some industries or areas that will continue to do well.
"Make sure you have a diversified portfolio that fits with your specific investment time frame, as well as your personal level of risk and return," Briscoe says. "When stocks perform well, it is easy to feel like you are being left behind when you have 20%, 30%, or 40% of your assets in fixed income. But remember, there are reasons why you have that allocation. In times of volatility and uncertainty, that is where diversification like bonds may help cushion your portfolio by acting as a risk mitigator."
When we experience a market downturn like we did in March 2020, it's easy to feel like all your savings may have been for naught, as you watch the stocks drop day after day.
"One factor that made this downturn feel even worse than past volatility was that most of us were stuck at home each and every day," Briscoe says. "We could not help but continue watching the news, checking our account balances, and worrying about our health, both personally and financially. It is important at that point to step away from all the noise. Call your advisor to talk through it. Take some time to revisit your plan and remember why you began investing and what you are investing for."
It is understandable to feel a bit of unease about the ups and downs. But when you look to the past, historically, the stock market has always eventually come out of its slumps to reach even higher heights.
For instance, from 1950 to 2020, the U.S. market experienced 12 bear markets, which happens when the major market indexes fall below 20% or more. These ranged in length from one month to almost two years, according to data analysis by First Trust Advisors. The severity of the bear markets ranged from a drop of 21.6% to 48.2%. But every time, the market has recovered and continued to grow to new highs.
Video by Coutney Stith
So instead of drowning in worries about the lows, take an active approach and be watching and ready to take advantage of the highs.
"Stay disciplined and diversified in these markets," Briscoe says. "Take advantage of opportunities that come up when you can, whether it be by adding cash or reallocating your portfolio. Continue to save even though it may be difficult, because even if you miss an opportunity, there will most likely be more in the future."
Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business, and other topics. Her work appears in several publications, including CNBC.com, Fortune.com, Entrepreneur, Working Mother, and CNNMoney.com.
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