Select your location

  • Japan
  • International - other
  • Asia - other

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Qui êtes vous ?

Sélectionnez un autre emplacement

Wer bist du ?

Wählen Sie einen anderen Ort

Who are you ?

Select another location

Who are you ?

中國香港特別行政區

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Who are you ?

RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 754, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Who are you ?

Select another location

Who are you ?

Select another location

Understanding volatility

The ups and downs of being an investor

Not-so-fun fact: The stock market’s going to rise and fall. Some dips will be minor, some will be major, and some might make you nervous about the very idea of investing. But even the most extreme fluctuations don’t have to be fatal to your finances. You can plan for the ups and downs and invest in a way that will help you ride it out.

 

Meet the moody market

If you could chart the ideal investment performance, it would move steadily upward over time. A chart of the stock market looks very different. For one thing, what we call “the market” is usually a representation of a limited number of stocks, called an index. The Dow Jones Industrial Average (or "the Dow"), an index of 30 closely watched companies, is one popular measure of the market. Its performance can be more erratic — it may move up a bit, then down a bit, then up some more and so on.

 

That erratic behavior is volatility. It’s a normal part of what the market does, and it helps keep investment prices in line with reality. In fact, economists refer to big market downturns as “corrections.”

 

While it’s true that ups and downs have been an unavoidable part of investing in the stock market, steep drops in value can be stressful to even the most seasoned investors. But when the Dow takes a dive, it can be a good idea to stick with an investment strategy designed to weather declines over time.

 

Why stay invested when your instincts say it’s time to go? Because it’s nearly impossible to tell if a dip is temporary or a sign of a correction to come. Sometimes markets rebound quickly; other times the dips are more prolonged. Try to guess the market’s next move by cashing out and you may miss a chance to recover losses. You also miss being part of potential upswings. And while you occasionally may want to buckle your seatbelt for a bumpy ride, history shows us the general trend of the market has been positive.

 

Coming to terms with volatility

Although volatility is inevitable, there are a few ways you can lessen its impact:

 

  • Broaden your investments. Bonds can be less volatile than stocks and have their own market cycles. They are often up or steady when stocks are down. By investing in a mix that includes stocks, bonds and cash, you may lower your risk by not being overexposed in any one area.

 

  • Invest regularly in good or bad markets. Invest often and you may benefit from lower prices when the market is down. Contribute regularly to a mutual fund through your 401(k) plan, for example, and you could get some bargains without even realizing it.

 

  • Don’t panic. Even the worst market crashes have rebounded eventually. Despite some notable drops, the S&P 500 Index, a popular measure of the larger stock market, has returned about 10% per year on average.* Stick with an investment strategy that keeps you in the market. And try to avoid emotional decisions in those downward Dow moments.
* Average annualized return of the S&P 500 Index from 12/31/1927 to 04/30/2023 is 9.91%. Past returns provide no guarantee of future results.

Related articles

Benefits of long-term investing

Master the basics of mutual funds

The Dow Jones Industrial Average is a price-weighted index of 30 of the largest blue-chip stocks in the market.
S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.
 

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

There may have been periods when the results lagged the index(es) and/or average(s). The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

Each S&P Index ("Index") shown is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

© 2024 Morningstar, Inc. All Rights Reserved. Some of the information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar, its content providers nor Capital Group are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Information is calculated by Morningstar. Due to differing calculation methods, the figures shown here may differ from those calculated by Capital Group.