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Navigating the Impact of Daily Market Fluctuations on Investments

Ironically, it’s the unpredictability of the market that can lead to impulsive decisions – decisions that can have lasting consequences on your investment portfolio. But by staying the course and keeping a long-term view, you may be able to ride out short-term market fluctuations, which could potentially lead to stronger performance outcomes.

Battling the stock market’s unpredictable nature can take its toll. One way to weather market storms is to stay the course. This means having a clear investment plan in place, diversifying your portfolio, and avoiding emotional decision-making. It is important to note that investing involves risk, and there can be no assurance of a positive outcome.

The Importance of a Long-Term Investment Strategy

When it comes to investing, it’s easy to get caught up in the daily ups and downs of the stock market. But here’s the thing: obsessing over short-term fluctuations is a surefire way to drive yourself crazy and could lead to some pretty questionable investment decisions.

Are you new to the world of investing? That’s okay. Every day, month, and year, I still learn something new. From avoiding emotional decisions to setting clear financial goals, I’ve discovered that it’s easier than you think to build long-term wealth.

The Power of Compounding

Compounding is about your returns growing on themselves over time.  In a positive market, it can be like a snowball gaining momentum down a slope.  The longer you let that snowball roll, the larger it may become.

As an example of compounding, let’s say you invest $1,000, and your estimated rate of return is 7%. After 10 years, that initial investment would be worth around $1,967. But if you let it ride for 30 years? You’re looking at over $7,612. That is one example of compounding at work. Of course, markets fluctuate and an estimated rate of return is unlikely to be consistently achieved.

But if you take this a step further and invest $1,000 for your initial deposit and then contribute $100 a month with an estimated rate of return of 7%. After 10 years, with the estimated rate of return being consistently achieved, that investment would be worth $18,546 just by doing the habit of putting $100 dollars in each month. Additionally, if you do this habit for 30 years, this investment would be $120,965. 

The key to saving is to start early and be consistent. Even small amounts invested regularly in a positive market can add up to big returns over the long haul. It’s not about hitting home runs; it’s about steady, reliable growth. Over time, if you make good daily habits, you could increase the chances of getting better results in the future. Fluctuating markets can yield both positive and negative results.

daily habits

Avoiding Emotional Reactions to Daily Market Movements

Here’s the thing about the stock market: it’s unpredictable. Trying to guess which way it’s going to swing on any given day is a fool’s errand. But when you’re focused on the long game, those daily fluctuations become a lot less scary.

It’s human nature to want to react when we see big drops or spikes in the market. But more often than not, making investment decisions based on emotion could lead to trouble. When the market’s down, it’s tempting to cut and run. When it’s up, it’s easy to get greedy and take on too much risk.

One recommended approach is to stay the course. Have a solid plan in place and stick to it, regardless of what the market’s doing. Don’t let fear or greed cloud your judgment. Not letting emotions cloud our judgement is a strategy that is easier said than done. Investing today doesn’t necessarily mean you are going to get a good result tomorrow, but if we do it consistently over time, generally, you have a higher chance of reaching your goals. Trust in the power of time and consistency.

Historical Returns and Market Timing

When the stock market reaches a new high, you often hear people warning of an imminent crash. “Sell now before it’s too late.” But is that really the way to go?

History tells a different story. Let’s take the S&P 500, for example, one of the most widely used benchmarks for the U.S. stock market. Over the past century, the S&P 500 has a history of around 9%-10% annual return in the stock market. This return isn’t solely derived from positive factors. These results encompass some periods of significant volatility.

But even if you had the worst possible timing and invested at the peak before a crash, you may have come out ahead over the long run. Take the Great Recession of 2008, for example. If you had invested in the S&P 500 at its peak in October 2007, your portfolio would have been down by more than 50% by March 2009.

But if you had stayed invested? By 2013, you would have been back in positive territory. And today, that same investment would be up by more than 200%. The lesson here is: Time IN the market more often than not matters more than timing the market. Even the experts can’t predict with certainty when the next downturn will hit or how long it will last. The historical 9-10% annual return in the stock market isn’t solely derived from positive factors. These results encompass some periods of significant volatility.

Impact of Daily Market Fluctuations on Investments

The chart above shows that the longer you stay invested, the more likely you are to come out ahead.  Comparing the 20-year rolling returns to the 1-year rolling returns shows a higher likelihood of a positive outcome.

The Futility of Market Timing

The longer you stay invested, the more likely you are to come out ahead. Sure, there will be bumps along the way. But over time, the stock market has proven to be one way to build long-term wealth. Of course, historical returns cannot guarantee future performance.

If you’re accustomed to staring anxiously at market charts, waiting for the perfect entry point, try taking a step back and creating a balanced investment portfolio that syncs with your financial objectives and risk capacity. As the market’s oscillations inevitably settle, your returns may follow suit.

Consistent Investing May Yield Beneficial Results

Rather than stressing about market fluctuations, consider some benefits of consistency. Stay the course and let the returns compound over time.

In addition to compounding returns, another benefit to consistent investing can be dollar-cost averaging. The idea is simple: instead of trying to time the market, you invest a fixed amount of money at regular intervals, regardless of what the market does.

According to the chart below, if you invest on any day of the week, you will typically get a 5.8% return on your money in 6 months. Conversely, if you invest at all-time highs, you would typically get a 6.2% return on your money in 6 months. Your return will typically change depending on how long your money has been invested. 

investing at all-time highs

Dollar-Cost Averaging

As an example of dollar-cost averaging, let’s say you decide to invest $500 every month. When the market’s up, your $500 will buy fewer shares. But when the market’s down, that same $500 will buy more shares at a lower price. Over time, this approach can help smooth out the impact of market volatility on your portfolio.

One benefit of dollar-cost averaging is that it takes emotion out of the equation. You’re not trying to guess when the perfect time to buy or sell is. You’re just consistently investing, month after month, year after year. And as we’ve seen, consistency can potentially pay off in the long run. One of the best ways to do this is to set up an automatic deposit schedule into your investment account, and set reminders for yourself to buy into various investments at a regular cadence. This automates some of the decision making removing both the emotions and potential human error. 

The Role of Financial Planning and Goal Setting

The treasure of financial independence can begin with investing, but it’s only one piece of the puzzle. To help fill in the rest of the puzzle, many people turn to financial planning to better understand their full financial situation. Financial planning can give shape to your dreams, linking the dots between your money, goals, and desired lifestyle.

Collaborating with a Financial Planner

Collaborating with a professional planning specialist might just be what you need. By working together, a well-versed planner can explore your financial circumstances, risk tolerance, and goals. From there, they can help design a closely tailored investment strategy to fit your personal financial goals.

A financial planner can work with you to pin down a budget that really makes sense, figure out insurance strategies that fit your needs, and guide you through the intricacies of investing your money.

Key Takeaway:

Fund your investments consistently, regardless of market ups and downs, and it’s time in the market, not timing the market. 

Conclusion

The impact of daily market fluctuations on investments can be a source of stress and uncertainty for many. But by maintaining a long-term perspective, investing consistently, and working with a financial planner, you may be able to navigate market volatility with greater confidence and potentially stay on track to achieve your financial goals.

The notion that investing is solely about market-watching and daily guessing has evolved beyond popular myths. Nowadays, there’s a widely accepted understanding that establishing a clear plan, diversifying risk, and maintaining a long-term perspective are elements in investing. 

 If you apply good habits over time generally you may increase your chance of positive results, and if you have bad habits over time, your results generally will be bad.

So, the next time if you find yourself worrying about the impact of daily market fluctuations on investments, take a deep breath and remember: slow and steady may help you win the race. With patience, discipline, and a sound investment strategy, you can weather many storms and may emerge stronger on the other side.

Investment advice is offered through Stratos Wealth Advisors, LLC, a registered investment advisor.  Stratos Wealth Advisors, LLC and Riverbend Wealth Management are separate entities.  The information in this blog has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.  The information presented is for educational purposes only and is not intended to be an offer or solicitation for the sale or purchase of any securities or personalized investment advice.  All investments involve risk and there can be no assurance that any investment strategy assures success or protects against. loss.

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