Finance Your mindset Perhaps the most important thing to do after a correction is to check your mental outlook. How you perceive events and news in the weeks and months to come can make a tremendous difference to the financial decisions which you make. Prepare for continued volatility What’s the first thing that you should do after the market experiences a period of volatility? Easy: prepare for more. Historically, a downturn rarely ends cleanly, with an “all clear” signal that everyone can easily recognize. More likely, there will be continued fits and starts, ups and downs, as the market struggles to turn the corner and start the next bull run. Ask yourself whether you’re prepared for a protracted period of volatility and market “choppiness.” Howwould you feel if the current downturn went a little further down? What would you do? What financial actions or adjustments would you be inclined to take? What if the market bottomed out, but remained volatile for another year or so? How much longer could you continue without taking action? Understand the historical perspective Yes, market corrections are both stressful and painful. But volatility remains a part of investing – something that shouldn’t be feared, but expected as normal and, ultimately, temporary. Need proof? Over the past 35 years or so, the U.S. stock market has experienced an average swing of about 14% from its 52-week high to its 52-week low in any calendar year during that period. That’s a fair bit of back-and-forth. Even so, it’s had a positive annual return in more than 80% of the calendar years in the period. Looking for some more recent examples? U.S. stocks experienced sharp drops in August 2015. And in 2016, after the United Kingdom’s Brexit vote. And in 2017, as problems with North Korea and ongoing U.S. political turmoil gave investors plenty to worry about. Then in 2018, investors were concerned about the breakup of NAFTA, war in the Middle East and still more U.S. political turmoil. Even so, during the three-year period, the broader market was up by more than 30% cumulatively. Or how about this: since 1990, the U.S. stock market has seen 12 market corrections of 10% or more. The longest of these has been 929 days (that was the tech bubble in 2000-2002), the shortest has been 13 days (what we saw earlier this year) and the average was 76 days. No, there’s nothing to say that the next correction must be shorter (or longer) than these goalposts. But it does give you an indication that whatever happens, it won’t last forever. Our point isn’t to give you the trite advice to simply ignore market downturns or corrections. Rather, it’s to remind you of the age-old wisdom: this too shall pass. Indeed, history shows that if you can ride out the volatility and remain invested over the long term, the odds are in your favour. Do a “gut check” Many people believe that intelligence and knowledge are critical tools for investment success. And they’re right. But what’s even more valuable is an iron stomach: the fortitude and discipline to ignore the anxiety and fear that can grip even the most experienced investors from time to time. Whenmarkets get volatile, it’s a good idea to do a little self-evaluation of your intestinal fortitude: have you been able to absorb negative market news and commentary without feeling anxious? What “letter grade” would you give yourself when it comes to managing your emotions during a market decline? Have you found it difficult to keep yourself from worrying about the day-to-day movements of your investments? Let’s face it: you’re not a machine. It’s impossible to expect yourself to be indifferent and dispassionate when a downturn happens. But it’s important to learn how to recognize when anxiety and worry start to interfere with your investment decisions. Think about it now, so that you know your limit next time. 32 | www.snowbirds.org
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