Dealing with volatile markets | Capital Group

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fight fear with facts fight fear with facts

Most people feel the pain of losing money more than they enjoy gains. This can explain why some investors flee the market when it starts to fall. And why some jump back in when they have recovered.
Both can have negative impacts. But smart investing can overcome the power of emotion. Here are four concepts that can help overcome emotional investing during volatile times

Market declines are part of investing

Market declines and bear markets are inevitable but they don’t last forever. Historically, investors who have stayed the course over the long run have been rewarded as each downturn has been followed by a recovery.
D7_Bull-bear-markets_630x300(en)

AVERAGE BULL MARKET

268% TOTAL RETURN
70 MONTHS

AVERAGE BEAR MARKET

-33% TOTAL RETURN
14 MONTHS

Past results are not a guarantee of future results. For illustrative purposes only. Investors cannot invest directly in an index.

Bear markets represent peak-to-trough price declines of 20% or more in the MSCI World Index. Bull markets reflect all other periods. Data to 31 December 2017. Sources: Capital Group, MSCI


Time in the market, not timing

No one can accurately predict short-term market moves, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation that follow market downturns.

Short-term declines vs. subsequent 12-month returns

D7_Short-term_declines_630x300(en)

Past results are not a guarantee of future results. For illustrative purposes only. Investors cannot invest directly in an index.

Decline represents the total loss from the start of the event to the correction trough. Subsequent 12-month return represents the total return from the event trough through the following 12 months. US flash crash: 6-7 May 2010; Black Monday: 8 August 2011; China stock market crash: 21-25 August 2015; China growth concerns: 1 January - 11 February 2016; Brexit: 24-27 June 2016. Data over the period 5 May 2010 to 30 June 2018. Sources: Capital Group, MSCI


Dollar cost averaging

Dollar cost averaging is the principle of investing a fixed amount at regular intervals, regardless of market ups and downs. This approach means investors purchase more shares at lower prices and less shares at higher prices. Over time investors pay less, on average, per share.
D7_Share-Acc-Chart_USD_630x300(en)

The figures shown are for illustrative purposes only and do not represent the actual results of a specific investment.

Over the 12-month period, the total hypothetical amount invested was $6,000, and the total number of shares purchased was 439.94. The average price at which the shares traded was $15, and the average cost of the shares was $13.64 ($6,000/439.94). A programme of regular investing neither ensures a profit nor protects against loss, and investors should consider their willingness to keep investing when share prices are declining. Source: Capital Group


Further resources

Download useful information on how to help prepare your clients for market volatility.

 

 

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