Keep Calm & Remain Diversified
During periods of market downturns, it is more important than ever to keep calm and remain diversified. The charts below are helpful reminders of why we ‘stay the course’ as long-term investors.
The Law of Market Cycles
The chart below shows how a hypothetical investment of $10,000 in the S&P 500 in 1926 would have grown to more than $74 million today. Visually, the chart makes investing look simple. But the market does not move in a straight line upward. The most interesting element of the chart is what is minimized over the long term—volatility. Investors don't have a 90-year time horizon and the sharpness of volatility is muted over time.
An important lesson of this chart is that markets are cyclical and bear markets are a normal part of investing. Bear markets happen and, in many cases, are inevitable. Investors that expect them and put them in the proper historical perspective should have better long-term success. That's the power of a long-term investment plan.
Remaining Invested is Critical
The saying "time in the market not market timing" are words most investors should live by. No one knows when the biggest returns or steepest drops will come. Keeping calm and remaining invested is critical. Missing as few as 10 days can significantly impact returns, as this chart illustrates below.
The Importance of a Long-Term Perspective
Market highs and lows have historically evened out over the long term, particularly if you were invested in a diversified portfolio. Adhering to a lengthy time horizon may not always be easy, especially in a downturn, but it can be a valuable discipline. As this chart illustrates, short-term volatility can be violent. Knee-jerk reactions to market fluctuations can lead to buying high and selling low, making it difficult to stay on track and achieve long-term financial goals.
*Content courtesy of: AMG Funds "Keep Calm and Remain Diversified" Principles of Investing Success Q4 2021 Brochure.*