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Stock markets go through periodic convulsions. They can go down as well as up, and even when they're going up they are said to climb walls of worry.
As the chart above shows, though, it can pay to keep your head (while all around are losing theirs).
Shares globally experienced considerable volatility late last year; from the beginning of October to the end of December, the global stock market fell Sby 17%. But fast-forward four months to the end of April and the stock market has rebounded strongly and recouped all of these losses.
There were multiple reasons for the slump and turnaround. Fears of a global growth slowdown, increasing trade uncertainty, and tightening financial conditions were among the biggest negative factors on the way down.
And that has since reversed in part because of the policy responses to some of that negativity – in particular, the looser monetary policy stance signalled by the US Federal Reserve. A pick-up in global economic momentum has also helped.
But regardless of why markets turned, any investor who panicked at the end of the year and sold their equity investments (and moved into cash) would now be significantly worse off than if they hadn't.
What it shows is just how important it can be for investors to ignore short-term market volatility by tuning out the noise and being patient.
In fact, we may be about to undergo another bout of volatility, as evidenced by the slight decline in the global stock market recently. This most recent move was triggered by the US government's decision to raise tariffs on Chinese imports.
But, over the long term, adopting a strategic approach, staying focused on your investment goals and keeping your discipline will give you the best chance of investment success.
The views expressed in this material are based on the author's assessment as of the first publication date in May 2019, are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The authors may not necessarily update or supplement their views and opinions whether as a result of new information, changing circumstances, future events or otherwise. Any "forward-looking" information contained in this material should be construed as general investment or market information and no representation is being made that any investor will, or is likely to achieve, returns similar to those mentioned in this material or anticipated in this material.
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