"Financial Management Q&A" The stock market is turbulent and patience is king

"Financial Management Q&A" The stock market is turbulent and patience is king (Alberta Times) Q: In recent weeks, the market has been fluctuating sharply. Now...

(Alberta Times)

Q: The market has been swinging wildly up and down in recent weeks. Is it time to stay on the sidelines now, or is there a better way to deal with it? A: The past few weeks have been the absolute best opportunity to test investors’ ability to cope with a sharp decline in stock prices and a sudden increase in market volatility. In a volatile market, the best response may be to avoid panic! Of course, staying calm is definitely easier said than done. Especially in an environment where information is highly developed and investors react quickly to all kinds of news, it will be even more difficult. Emotional selling has become a major cause of market instability. But if you have enough patience and can continue to focus on long-term investment goals, you will definitely see the generous returns from your determined investment in the next few years. From the perspective of future development, there are still many unfavorable factors, which means that the stock market cannot develop unilaterally upward. Historically, a stock market drop of about 10% is a normal market adjustment. Many professional investment advisors advise against rushing to cash out, but at the same time the market provides a buying opportunity. Investors all know the principle of "buy low, sell high." A larger decline will naturally occur. But fortunately, it usually doesn't last long. Periods of rising stock prices usually last longer than periods of falling stock prices. Although the stock market has had its ups and downs over the past 20 years, the S&P 500 Index has still provided positive returns, and with the reinvestment of dividends, the cumulative return has reached 16 times. After the dot-com bubble burst in March 2000, the S&P 500 index fell by approximately 47% by September 2002, but the previous bull market began in November 1987 with a cumulative increase of 818%. That is, two and a half years of decline corresponds to more than 12 years of rise. Including all market ups and downs, if you stick to the market for a long time, what will be the return? Since 1926, the S&P 500 Index plus dividend reinvestment has averaged an annual return of 9.9%. When the stock market bottomed out in 2009, the return fell to 9%, but by December 2010, the return had improved significantly. No matter how the market changes, the best way is to maintain a healthy patience. Resist any urge to cash out your stocks and stay invested. No one knows when the market will rise again. Of course, this does not mean that you should never adjust your positions throughout your life. Personal financial situations will change, and so will your risk tolerance. This all requires adjustments to investment. Keep investing every month, and eventually you can buy some stocks at low prices to make up for losses caused by future market declines. Similarly, when the market rebounds, there is no need to worry about whether the market will go short. Few investors can truly seize the lowest point to enter the market. Remember, investors need to focus on long-term returns, not daily fluctuations in the market.