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5 Things We’ve Learned from the Market’s Wild Ride

In dizzying succession, the past few years have brought investors the steepest stock market decline since World War II and one of the fastest stock market surges. Many investors feel that they were unprepared to deal with the gyrations. Learning from the experience may lead some to a calmer outlook for the future.

1. Find opportunity in adversity. When the value of your portfolio drops as far as many did in 2008, it can send a shudder down your spine. But you can take a deep breath and then remind yourself that a stock market swoon means that stocks are on sale. You’re probably delighted when you find bargains on the clearance rack. Apply that same outlook to your investments.
2. Keep a long-term perspective. Stock market results in 2008 were miserable. The S&P 500, a broad measure of the U.S. stock market, was down 37% in 2008. But if the short-term drop had scared you into selling, you would have missed the 26.5% returns the index posted in 2009. Over the past 25 years, 1985 to 2009, the average annual return of the S&P 500 has been 10.5%.
3. Asset allocation matters. In 2008, when stocks were having a very bad year, long-term corporate bonds earned 8.8% and U.S. Treasury bills returned 1.6%. And in 2009, when stocks were soaring, bonds and Treasury bills didn’t do as well, returning 3% and 0.1%, respectively. As is often the case, different asset classes – stocks, bonds and cash equivalents – reacted to market conditions in different ways. By dividing your investments among the three major asset classes, you can help to manage risk while pursuing attractive returns. The asset allocation you choose should be based on your goals, timeline and risk tolerance.
4. Stay the course. With systematic investing, also called dollar-cost averaging, you invest a consistent amount of money at regular intervals, no matter what the market does. It can take the emotion out of investing and replace it with a measure of discipline. Since you buy more shares when prices are lower and fewer when they’re higher priced, over time, the average price you’ve paid for the shares you own may be lower than the average share price. If you kept investing during the recent downturn, you bought more shares with the same dollar amount, and then had more shares on which to enjoy the turnaround in prices.
5. Seek professional guidance. Few people have the time or expertise to manage their own investment portfolios to best effect. Consulting with an investment professional at White House Federal Credit Union can set your mind at ease, knowing you’re on track toward your goals.

Investment products are not insured by any government agency, have no financial institution guarantee and may lose value. Past performance is not a guarantee of future results. Systematic investing cannot guarantee a profit or protect against loss in a declining market. Consider your ability to continue investing through periods of low price levels.