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Market Fluctuations

Principles to Pursue Your Investment Goals

These four fundamental principles can help you chart a course through a volatile investment environment.

Stay True to Your Objectives

If you’re like most investors today, you’re concerned about market volatility. And that means you’re probably paying close attention to the daily stream of news tracking the market’s ups and downs.

Problem: Where you focus your attention can influence the way you perceive your own progress.

Solution: Look past the inevitable market swings and steady drumbeat of news. If you stay focused on your own investment goals, you’re more likely to stay on track pursuing success.

To get a sense of how powerful context can be, take a look at the illustrations below.

The Same 20-Year Period From Three Distinct Perspectives

The Media

Focusing on short-term fluctuations can make investing confusing and uncomfortable.
Source: S&P 500 Index

The Markets

Even a year-by-year look at returns can emphasize how much an investment lost during declines instead of how much it grew over time.
Source: S&P 500 Index

Your Objectives

Focusing on long-term investment goals can help you avoid being sidetracked or distracted by ever-changing market conditions.
Source: S&P 500 Index

Be a Realist

While periods of economic and market strength often inspire investor optimism, market turmoil can lead to intense investor pessimism.

Problem: Your emotions can lead to poor investment decisions, such as buying stocks near market highs and selling near market lows.

Solution: Rather than chase new highs or panic when declines occur, take a realistic approach to investing that includes regular contributions and maintaining a well-diversified portfolio.


Don’t Confuse Safety for Security

The market volatility and economic uncertainty of the past several years has severely undermined investor confidence. As a result, you may have given up on equity investing and instead sought the safety of cash.

Problem: If you’re in or near retirement and are starting to rely on your investments for income, having all of your assets in cash could leave you more vulnerable to the potentially damaging effects of inflation.

Solution: Although past results are not predictive of future results, stocks and bonds have generated relatively attractive returns that have outpaced inflation. Of course, stocks and bonds have also been more vulnerable to declines than cash, so including cash investments in your portfolio can add a measure of stability.

In the following illustrations, you can see how important stocks and bonds are to a well-diversified portfolio.

Why Stocks and Bonds Matter to Your Long-Term Investment Goals

Cash: U.S. 30-day Treasury bills
Global stock/bond blend: 60% MSCI All Country World Index1/40% Bloomberg Barclays Global Aggregate Index
U.S. stock/bond blend2: 60% S&P 500/40% Bloomberg Barclays U.S. Aggregate Index
1 Results for the MSCI All Country World Index reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withholding taxes thereafter.
2 Results are rebalanced monthly.
Source: Thomson InvestmentView

 

A Diversified Portfolio Helps Sustain Your Investments in Retirement

Cash: U.S. 30-day Treasury bills
Global stock/bond blend: 60% MSCI All Country World Index1/40% Bloomberg Barclays Global Aggregate Index
U.S. stock/bond blend2: 60% S&P 500/40% Bloomberg Barclays U.S. Aggregate Index
Results for the MSCI All Country World Index reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withholding taxes thereafter.
Results are rebalanced monthly.
Source: Thomson InvestmentView

 


Plan for the Ups and Downs

Market cycles inevitably include periods of strength and weakness.

Problem: The precise duration and scope of bull and bear markets are never clear until after the fact. So trying to time these cycles consistently is nearly impossible.

Solution: Sticking with a well-constructed investment plan is a key to long-term success. An objective-based approach to investing mirrors the way you manage your other personal finances. It divides your assets based on your needs and investment goals.

  • First, there’s the money you need to cover everyday and emergency expenses (preservation).
  • Then, there’s the money you set aside for the future (balance).
  • The rest goes toward helping you build assets to fulfill your long-term goals (appreciation).

The result is a portfolio that is aligned with your short-term needs and long-term investment goals, which can give you the confidence needed to stay with your plan when markets go to extremes.

Like other investments, preservation investments can lose value.

Focus on Your Long-Term Investment Goals

Throughout history and across market cycles, investors have always faced uncertainty, discouraging headlines and bouts of volatility. But over time, patient investors have been rewarded.

Following these four timeless principles of investing to create and maintain a well-diversified portfolio can help you pursue your long-term investment goals.

Note: It’s important to work with your financial professional when making changes to your financial plan.

The S&P 500 Index (”Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2017 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products.

Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, ”Bloomberg”). Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, ”Barclays”), used under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

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Standard & Poor's 500 Composite Index is a market capitalization-weighted index based on the average weighted results of approximately 500 widely held common stocks.