When an investment legend who has seen 50% single-day declines twice in his career says he’s never seen volatility like he’s currently seeing, it means the market is in the midst of a once-in-a-lifetime wild ride. Despite the yo-yoing stock market, Jack Bogle, the founder of Vanguard, whose career spans 66 years, doesn’t think that long-term investors have anything to worry about.
Most seasoned investors agree. But many less-experienced investors aren’t as confident, and it shows. They are panicking with every new news cycle that claims an impending trade war with China is devastating the market and sending the Dow Jones into triple-digit declines, or cheering the news that China’s easing on trade war talks is sending the Dow Jones up by triple digits.
Volatility’s Causes and Effects
The causes of the roller coaster volatility include a variety of concerns: President Trump’s tweets, the Federal Reserve’s plans to continue raising interest rates, inflation, that possible trade war with China and more. If that wasn’t enough, the market is experiencing an unusually long bull run. As the Dow Jones hovers around 24,000, it’s hard to imagine that nearly nine years ago it dropped to a low of 6,443.27. Financial advisers and professionals believe stock prices are on the high end.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Anxious investors during times like these experience two kinds of volatility:
- Upside volatility is when the investor sees the market rising and rising and wonders if they are missing out. When the Dow Jones shoots up 300 points in a single day, it’s natural to think that it’s time to get in, causing many to invest. They believe that if they don’t, they are missing out on prime buying opportunities. But they are generally buying when they shouldn’t.
- Downside volatility is the opposite. The Dow opens 200 points lower than the previous close and only seems to descend from there. People begin to think they should sell while there’s still stock left to actually get rid of, and so they deviate from their plan.
After two years of rising stocks markets, when it seemed each new week brought a new index high, the market is shifting like never before. Emotions take over. Buy-high, sell-low becomes the unintended consequence.
It’s Not Market Timing, It’s Time in the Market
For the investors eyeing their savings and stocks and wondering what move to make to prevent a devastating loss, the best bet is to stay the course on the path set forth by you and your financial planner. In the long run, stocks rise. Remember, the news outlets make money when you watch their programs and click on their articles. That’s why you have to wait until the 11 o’clock news to see what in your kitchen might kill you, or to learn if the latest stock drop is the start of a major downturn.
The best thing an investor can do is tune it out: Don’t watch the news. This type of volatility causes irrationality, so it’s best to not pay attention to it. Investors should be putting blinders on and not buying into the talking heads on TV. Corrections, even in volatile times, are a natural part of the market fluctuation, and rarely do they turn into a bear market; in fact, 80% of corrections will rebound without becoming a bear.
Over time, the market generally moves up overall. Regardless of these volatile times, getting reassurance from your trusted financial adviser and sticking with your pre-determined course of action may be the best option available.
This article is for informational purposes only. It is not intended as investment or tax advice and does not address or account for individual investor/taxpayer circumstances. Please click here for important additional disclosures.
-
Best Banks for Retirees 2025National banks offer a wide variety of accounts and services, including wealth and investment management. Here's Kiplinger's pick of the best.
-
Best Banks for High-Net-Worth Clients 2025National banks offer a wide variety of accounts and services, including wealth and investment management. Here's Kiplinger's pick of the best.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's GuideWhen the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
-
You Don't Want Just a Financial Plan: You Need a Purpose and Retirement IdealsThese five questions will help you drill down to what you really want out of retirement. Then you can get down to the business of crafting a financial plan to make it happen.
-
I'm a Financial Adviser: This Is How You Can Save for Big Goals Even if You Feel Like You're Barely Getting ByLearning good financial habits — building an emergency fund, paying down debt, saving consistently — gives you flexibility, options and a path to security.
-
How to Buy an Annuity Online (Without Regret)You should never be rushed into buying an annuity. But now that they can be sold quickly and easily online, you need to be more alert than ever to pushy salesmanship. Here are four signs you're working online with a professional.
-
How Much Income Will an Indexed Annuity Get You? An Annuities Expert Lays Out the NumbersGuaranteed lifetime income sounds great, but how much will it be? Several factors determine your future payout on indexed annuities with an income rider.
