Now—as ever—is the time for a long-term-investing view

At Vanguard, we’ve always emphasized the importance of investing for the long term. The example of two recent U.S. equity market trading days helps reinforce that message.

On January 20, the markets rose solidly throughout the day, with the Nasdaq, best-known for technology stocks, up nearly 2% at its highest point. But the gains evaporated in a flurry of late selling. Just two business days later, on January 24, the situation presented itself in reverse. The Standard & Poor’s 500 Index of the largest U.S. companies was down by as much as 4% yet finished in positive territory after a late-day surge.

Anyone who hadn’t paid attention to the wild swings may have thought that stocks’ daily movements were unremarkable. We’ve always believed that, for long-term investors, not paying attention to the day-to-day is a wise strategy.

Several factors suggest more volatility ahead

It hasn’t been possible, of course, to avoid the developments that have so roiled the financial markets in 2022. Two of the biggest—accelerating inflation and a pandemic that just won’t quit—we’re living with every day. Throw in a Federal Reserve that we believe will need to act decisively to contain inflation, as Vanguard’s global chief economist, Joe Davis, recently wrote and it’s not hard to imagine more volatility ahead, along with the potential for losses in a stock market that low interest rates have fueled.

But it remains possible to maintain perspective through understanding history. Volatility, as the illustration shows, is a constant that tends to spike when stock markets endure valleys.

What investors should keep sight of is that, over time, these inevitable valleys have given way to higher peaks. It’s why we continue to invest to finance our long-term goals, such as retirement. And it should be our goals that govern our approach to investing. These goals, as Vanguard’s principles for investing success emphasize, should be built on realistic assumptions for investing returns.