Don't Veer Off Course at the First Sign of a Squall in the Markets

Storm clouds move across a field. — (Image credit: Getty Images)

“What’s up with the stock market, and what should I do?”

This is a question I get regularly, but even more so recently when average annual stock market returns were being gained or lost in days or hours.

My personal gauge of heightened investor anxiety is not the VIX, the so-called “fear index” — it’s if I get a text from my eldest daughter asking me about the stock market. I got a text from her recently. The last time was during the depths of the COVID sell-off in 2020.

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While you can’t control the markets, you can focus on four things you can control no matter what environment you’re in — we call them Vanguard’s Principles for Investing Success:

Create clear, appropriate investment goals
Keep a balanced, diversified mix of investments
Minimize cost
Maintain long-term discipline

That last one — maintain discipline — is the toughest to follow when markets are choppy and investor sentiment is near all-time lows.

So, overall, did Vanguard investors maintain discipline through these squally markets?

Yes, indeed.

During the recent height of market volatility, millions of self-directed investors on Vanguard’s brokerage platform maintained the tried-and-true investment principles of discipline and diversification as Vanguard’s brokerage platform remained consistently accessible through five days of heightened demand.

From April 3 through April 9, more than 91% of Vanguard investors did not place a trade and stayed the course. And for those clients who did trade on our brokerage platform, the vast majority were net buyers of equities, at a ratio of more than 4.8 buyers for every one seller over the five days.

And if you went to trade on Vanguard’s website or mobile app during these periods of market volatility, you’d be greeted with a pop-up message with tips for trading during volatile markets — including, “if your financial goals haven’t change and you have a diversified portfolio … you may not need to change your current investing approach.”

This is just one way we work to encourage healthy investing behaviors, even when emotions may be at an all-time high.

You stand there, we'll do something

One of my favorite quotes from Vanguard founder Jack Bogle is, “Don’t just do something, stand there.” Of course, he meant “tune out the noise” and don’t make a knee-jerk, emotional decision when it comes to investing — especially in volatile markets.

You may not need to do anything if you are already in an investment that aligns with your long-term investment or short-term savings goal.

For example, if you are in a multi-asset fund or advised portfolio, chances are those portfolios readjust asset mixes back to target weights for you.

Those with advised portfolios in taxable accounts may have even received the added benefit from tax-loss harvesting, which can lower taxes by realizing investment losses that can be used to offset gains and/or income — all while maintaining the strategic asset mix.

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If you are in a fund that adjusts its asset mix as you get closer to a goal, such as retirement or education enrollment portfolios, you may already have an appropriate asset mix that aligns with your goal and rebalances back to appropriate asset weights.

And if you have short-term savings, you may not need to do anything if the money is earning the interest or yield you deserve either through a high-yielding savings vehicle or money market fund.

Of course, everyone’s situation is different, which is why it’s important to design an investment plan that’s best suited for your specific goals and reevaluate when your personal circumstances change — not just because market prices change.

And, it’s important to remember, all investing is subject to risk, including the possible loss of the money you invest and that diversification does not ensure a profit or protect against a loss.

50 years and beyond

Vanguard’s principles for investing success, inspired by Jack Bogle, have gotten clients through nearly 50 years of ups and downs. I’m confident they’ll continue to get clients through the next 50 years and beyond.

As for my daughter’s text, I replied, “Markets go up and down. Stocks generally perform well over the long term but are susceptible to volatility. Best bet is to stay the course.”

Her reply, “okay, mr. finance.”

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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James Martielli, CFA®, CAIA®, heads Investment Product, Personal Investor, which is responsible for designing and enhancing Vanguard's brokerage and investment product offer, amplifying distribution efforts and shaping the investment methodology that fuels unmatched investment and savings outcomes for our clients. Previously, James led Investment & Trading Services (ITS), which educates individual investors about Vanguard's products and provides trade execution for the securities and products on Vanguard's retail brokerage platform.