Watching your portfolio take a hit can cause panic and make you second guess your entire investment strategy. While market volatility can be unsettling, it’s really par for the course when it comes to investing. History has proven that staying on track is often the best strategy for long-term investors.
Market volatility refers to the velocity with which stocks fluctuate due to an array of extrinsic factors such as political upheaval, elections, geopolitical events, corporate earnings or investor sentiments. The dips may seem alarming, but they’re a customary occurrence across market cycles. Decades of data shows that staying invested through volatile times has been a smart long-term strategy. Here are five reasons why your investment strategy should be about long-term commitment, even in uncertain times:
- Markets Have Proven to be Resilient
Historically, markets have always recovered over time. Whether it was the 2008 financial crisis or the COVID-19 crash, investors who stayed the course eventually saw significant gains. Selling during a dip means locking in losses, while staying invested allows you to benefit from recovery and long-term growth.
Rookie investors believe they can buy low and sell high. But seasoned players will always remind you that it’s impossible to predict the vagaries of the market. Studies show that missing just a handful of the best-performing days can drastically reduce overall returns.
The longer you stay invested, the more you allow your money to make more money. When investments are left unperturbed, their returns generate supplementary returns over time. Selling in haste can disrupt this compounding effect and slow down wealth accumulation.
- Volatility Can Unlock Opportunities
A lull in the market can be the perfect time to invest as stock prices plummet below their intrinsic value. With a sound investment strategy, you could exploit the occasion to buy quality stocks at discounted rates setting yourself up for much higher gains when the market springs back.
- Reduced Risk with Diversified Portfolio
If you have a diversified portfolio, spanning different asset groups like stocks, bonds, savings, real estate etc.., the impact of market downturns will be a softer blow to your financial well being. Diversification also allows you to have peace of mind as you’re not solely focused on one kind of investment.
In the end, don’t be swayed by the ephemeral winds of the investment world, because investing is all about staying committed. Remember— the key to success is not timing the market, but time in the market.
ALSO READ: Financial Planning vs Wealth Management: Choosing the Right Path for Your Future
Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.