Beginner’s Guide to Market Volatility

2 charts that put the recent market volatility in perspective


If you've been following recent financial news or checking your investment accounts, you might feel uneasy about all the turmoil in the stock market. There were 16 swings higher or lower of at least 3% in March, and the S&P 500 has declined more than 27% since February 19.

It can seem tempting to try to prevent portfolio losses and pull out your money: After all, 1 in 3 people say they'd give up on their investments if the market went down 10%, according to a recent Magnify Money survey. But experts emphasize that it's important to stay calm and not make rash decisions you could regret.

Long-term investors don't need to worry about short-term fluctuations, experts say. In a recent interview with CNBC, legendary investor Warren Buffett said that while the market's short-term moves are tough to predict, its long-term success is not. "I can come to a pretty firm conclusion that 20 or 30 years from now, American business — and probably all over the world — will be far better than it is now," he said.

That's in part because, in the past, every time the market has gone down, it has recovered and continued rising. The S&P 500 has gone up more than 2,700% since 1970.

The past decade has been one of the best times to invest in the market. Even considering the current downturn, investors who have stuck with the market over the past 10 years have seen gains of 110%.

If you had panicked and pulled your money out of the market during the 2008-09 recession, though, you likely missed out on most of those returns and gains.

Stock benchmarks enter bear markets

At current levels, both the S&P 500 and Dow average are in bear market territory, defined as declines of at least 20% from recent highs. That marks the seventh of these types of market sell-offs since 1970, according to data compiled CNBC and Goldman Sachs, and the 13th since World War II. For the previous 12, the S&P 500 experienced average declines of 32.5% and took an average of two years to recover.

Still, younger investors with a long timeline are in the best position to benefit. That's why some experts are calling this downturn an opportunity. "If you're under 60, the universe just gave you a gift this week. Use it," Josh Brown, CEO of investment advisory firm Ritholtz Wealth Management, posted on Twitter. 

While bear markets can cause worry and fear while they're happening, they're typically much shorter than bull markets. Investors who were willing to ride out stock market downturns in the past ended up receiving returns that more than made up for their losses once the market recovered.

It can be difficult not to get anxious during times of uncertainty in the stock market, but remember that time is on your side. That's why it's smart to stay focused on long-term goals like saving for retirement, experts say, and stick to your investing plan.

"If you're a young investor experiencing wild volatility for the first time, use this as an opportunity to learn how to curb your emotions when it comes to your money and the markets," Doug Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York City, told Grow. If you pull your money out of the markets, you've locked in your losses and risk missing out if the market bounces back as it has in the past.

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