Avoiding short-term market jitters is important when managing your portfolio. Vanguard released a simple chart recently showing how exiting the market in December 2018 would have affected the value of your portfolio. A hypothetical 60% stock/40% bond portfolio valued at $1 million on November 1, 2018, would have lost almost $57,000 by Christmas Eve. Then the investor is faced with the challenge of determining when to invest back into the market. It is important to remember that investing in the market is always a risk, but the same is true about pulling out of the market.
Looking at their research from another angle, if the entire portfolio was pulled out of the market on November 1, even for a brief few months, the investor would’ve missed out on over $42,000 in gains versus staying fully invested. This is a great example of why you should ride out market volatility and not act on emotions. If your portfolio aligns with your risk tolerance and is focused on the long-term plan, then changes should only be made because of life events and not because of changes in the market.
Remember that staying the course can pay off and avoiding those short-term jitters is smart.