Market volatility and you
Why is the stock market down? Should I sell my stocks? Before you react to market volatility, take a couple minutes to understand why it happens, what's going on right now, and what might happen in the future.
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A history of market volatility
The days known infamously ever after as "Black Thursday" and "Black Monday" kicked off a run on banks that ultimately led to the Great Depression. Americans fled to gold, depleting reserves. In response, the Federal Reserve increased interest rates … which didn't help, to say the least.
On the bright side, future economists and policymakers learned what not to do during downturns.
In the original "Flash Crash," markets endured the largest daily loss since 1929—and it came near the end of a 6-month drop in stocks. But after reassuring words from well-known businessmen like oil tycoon J. Paul Getty, investors were rewarded with the biggest single-day rally since 1929.
In the second coming of Black Monday, the Dow Jones Industrial Average suffered its largest single-day percentage loss ever. Traders feared new government regulations around corporate takeovers and the falling value of the dollar, causing the slide. But the markets began to stabilize quickly, regaining 15% in just a few days.
It may be hard to believe, but the future of e-commerce was in question at one point. Overvalued dot-com companies began crashing to the ground, and the collective value of tech companies plunged nearly 75%. The downturn was accelerated by the September 11 attacks in 2001, until it reached its lowest point in 2002—but in 2003, markets rose over 20%.
In the worst downturn since the Great Depression, stocks lost about half their value over 18 months thanks to a reckoning that began with bad mortgage loans. Millennials who came of age during the global financial crisis of 2008 learned an important lesson about investing—it's not always a straight line up—but anyone who stuck it out was well rewarded, as the markets regained all losses by 2012 and returned a total of 60% in the following 5 years.
After shrugging off a variety of concerns for months—Brexit, a trade war with China, and political uncertainty—the markets finally spooked late in the year. Over a matter of weeks, stocks gave up all gains (and then some) from what had been a good year. But as the new year arrived, markets rebounded with their best quarterly returns in a decade.
One thing's certain—the markets will continue to move up and down. Expecting occasional rounds of volatility can help you keep cool!
Pro tips on dealing with volatility
Volatility has a purpose—it's the price you pay for ultimately meeting your goals.
Without the risk that comes with investing, there would be little reward. Pushing through periods of volatility is what allows us to buy homes, retire, educate our children—all our most meaningful goals.
Julie Virta
Financial Advisor
Pro tips on dealing with volatility
Being uncomfortable with volatility is totally natural. Research shows that humans are hardwired to crave certainty. That's why your brain might be telling you to sell out of the market—and guarantee your losses are locked in forever—rather than wait it out. But you don't have to be controlled by your "lizard brain"! Some of my clients use techniques like mindfulness to let these feelings of nervousness pass.
Lauren Wybar
Financial Advisor
Pro tips on dealing with volatility
If you feel like you need to do something to deal with volatility, great! There are plenty of ways to put that nervous energy to work for you in a positive way. If you're worried a market downturn is going to affect your finances, make a list of ways you could start saving more if you needed to. If you're getting close to retirement, think about the decisions you'll soon need to make—like about Social Security, health care, or budgeting for retirement expenses. There are a lot of things you control when it comes to your money—focus on that! If you need help, our advisors are here.
Kevin Barr
Financial Advisor
Pro tips on dealing with volatility
People are often surprised that "good" market days are usually entangled with "bad" ones. (In fact, that's what volatility is—extreme ups and downs.) Almost all of the 20 best market days in the past 15 years happened within days of one of the 20 worst market days. And when those good days come along, you want to be in the market. It turns out that when markets are volatile, sticking to your plan is usually the best choice.
Matt Barrovecchio
Financial Advisor
Pro tips on dealing with volatility
Many of my clients use market downturns as an opportunity to build up their portfolios—saving more while buying stocks at lower prices.
Kahlilah Dowe
Financial Advisor
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Market return data is based on the Dow Jones Industrial Average daily price. "Loss" is the total drop from the previous market high to its low point. "Time to recover" is from the lowest point until it regained the previous market high.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
All investing is subject to risk, including the possible loss of the money you invest.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.
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