It is important to note that while stock market declines can be sharp over a short period of time, most pull backs are within historical norms. Take for example February 5th, 2018, many headlines focused on the Dow Jones Industrial Average (DJIA) recording its biggest single day point decline (-1,175), though the percentage decline (-4.6%) was only its 100th worst single trading day at the time, according to S&P Dow Jones Indices. Additionally, the fact that 2017 was such a unique and extended period of low volatility made the pullback in February of 2018 feel extreme.
What Should Investors Do?
While it is understandable for investors to feel anxious in the midst of such market volatility, we continue to emphasize the importance of maintaining a longer-term view. While the markets can and often do have pullbacks, nearly all investors have the same time horizon today as they did a week ago. During periods of heightened volatility, investors often feel the need to “do something”, though short-term, reactive moves are often ill-timed and can significantly impair the effectiveness of a well-designed investment plan. So long as circumstances and long-term objectives have not changed, investors should adhere to their long-term investment plan, consistently save, and should thoughtfully rebalance over time. If we do these three things well, we will put ourselves in a great position to build wealth and hopefully have more peace of mind along the way.