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3 reasons to stay invested right now

Key takeaways

  • Volatility is common, especially in the later part of an economic expansion.
  • Historically, many investors who moved out of stocks during down markets didn't fare as well as those who stayed the course.
  • To help manage volatility, consider whether your stock and bond mix matches your tolerance for risk, and consider adding assets that may offer inflation protection.

When there's some downbeat economic or market news, it's no surprise that some investors may end up fleeing the market for what they believe is safety or keep their cash on the sidelines until it's clearer which way things may be headed.

Unfortunately, they may be undermining their long-term growth potential. Historically, when investors have given up on their long-term strategies and react to short-term developments in the market, their portfolios have suffered. For example, in 2023, the average equity fund investor underperformed the S&P 500 by 5.5%.1

"In my experience, disciplined investors who develop a financial plan and stay invested have typically had better success reaching their long-term-financial goals," says Naveen Malwal, an institutional portfolio manager with Strategic Advisers, LLC. "I have found that investors who keep waiting for the perfect time to invest often miss out on gains over time."

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1. Over the long-term, stocks have grown through market volatility and recessions

While market corrections can feel scary, they don't necessarily indicate future losses. As the following chart shows, stocks have historically recovered even from major downturns and delivered long-term gains.

Chart shows rising price of the S&P 500 from 1985 through December 2023, despite 14 market pullbacks along the way.
Source: Fidelity Investments. Past performance is no guarantee of future returns. See footnote 2 for details.

And while recessions are certainly stressful and can present significant challenges to investors, they have often been relatively short and, historically, have been followed by larger, longer expansionary periods in which stocks have seen gains. "Since 1950, the US has gone through 11 recessions and many other challenges," says Malwal. "But stocks have finished higher than where they started in 5 out of 11 of those recessions. So not all recessions have led to stock market declines. Historically, stocks have shown an average annual return of around 15% since 1950, although they have also encountered setbacks."3

2. Missing out on best days can be costly

Counterintuitive as it may seem, some of the best days in the stock market have historically occurred during bear markets. "What we've seen historically is that investors who give themselves a time out of the market very rarely come back in at the right time," says Malwal. "Negative headlines can persist for some time. Investors typically wait for good news and by the time that happens, they've often missed some of the strongest days of market performance." And missing out on those big days can make a significant difference in your long-term return. As the chart below shows, a hypothetical investor who missed just the best 5 days in the market since 1988 could have reduced their long-term gains by 37%.4

Hypothetical growth of $10,000 invested in the S&P 500 Index, January 1, 1988–December 31, 2023.
Not missing any days would have resulted in $418,000. Missing just the 5 best days in the market would drop the total 37% to $246,000. Missing the 50 best days would result in a total of just $32,000.
Past performance is no guarantee of future returns. Source: Fidelity, Bloomberg as of 12/31/23. See footnote 3 for details.

3. Holding cash may also be risky

While keeping your money in cash may seem like a wise decision when uncertainty is high and markets seem unpredictable, the sense that it's risk free is somewhat of an illusion. Though your account balance may appear stable, inflation can eat away at its value over time, reducing your purchasing power. For example, if an investor puts $100 into a money market account today that returns 4% annually, it would be worth $104 a year later. But at a 4% inflation rate, goods that cost $100 today will cost $104. "Historically, a diversified mix of stocks and bonds have provided a better chance of outpacing inflation over the long run, versus investing in short term instruments," says Malwal.

Maintaining composure is key

Understanding the relative effects that recessions, volatility, bear markets, and investor behavior have had on portfolios is a key component to making more informed decisions about when and how to invest. However, even this knowledge may not be enough to assuage investor anxiety when the market declines and portfolios suffer. Thankfully, there are methods available to help investors avoid reactive decision-making.

  • Make sure you have emergency savings. Knowing you have enough money on hand to cover your essential expenses and any unexpected needs that might crop up in the event of an emergency can help give you the confidence to let your long-term investments remain in the market. (Learn more about establishing and maintaining your emergency savings.)
  • Consider dollar-cost averaging. Instead of investing large sums of money all at once, dollar-cost averaging involves investing a portion of that sum on a regular schedule, perhaps monthly, regardless of what direction the market is heading in. Over time, this may help you purchase more shares when prices are lower. (Learn more about dollar-cost averaging during bear markets.)
  • Consider investing defensively. Some economic sectors have been particularly resilient in down markets, especially those that offer essential goods and services, such as utilities, health care, and consumer staples. While past performance is never indicative of future results, investing in defensive sectors such as these can help investors feel prepared for what may come. (Learn more about defensive investing.)
  • Explore a professionally managed account. With a managed account, investment professionals can help tailor a diversified portfolio in accordance with your goals and risk tolerance. These professionals manage your account based on these preferences and in accordance with a disciplined process of investing and asset allocation that helps to remove emotional or reactive decision-making from the equation. There are different types of professionally managed accounts, but all are geared toward providing you with the information, expertise, and resources to help stay on track during difficult market conditions. (Learn more about professionally managed accounts.)

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1. “DALBAR Releases 30th Annual QAIB Report: Investor Behavior Continues to Hinder Returns,” DALBAR, April 11, 2024. 2. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation. S&P and S&P 500 are registered service marks of Standard & Poor's Financial Services LLC. The CBOE Dow Jones Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. You cannot invest directly in an index. 3. This is based on the cumulative percentage return of a hypothetical investment made in the noted index during periods of economic expansions and recessions. Index returns include reinvestment of capital gains and dividends, if any, but do not reflect the impact of taxes, fees, or expenses, which would lower these figures. This return information is not intended to imply any future performance of the investment product. Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. Source: Bloomberg, S&P 500 Index® total return for 12/31/49 to 12/31/23; recession and expansion dates defined by the National Bureau of Economic Research (NBER). The S&P 500 Index was created in 1957; however, returns have been reported since 1926, and the index has been reconstructed for years prior to 1957. 4. Hypothetical growth of $10,000 invested in the S&P 500 Index January 1, 1988 – December 31, 2023. The hypothetical example assumes an investment that tracks the returns of a S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. “Best days” were determined by ranking the one-day total returns for the S&P Index within this time period and ranking them from highest to lowest. There is volatility in the market and a sale at any point in time could result in a gain or loss. Your own investment experience will differ, including the possibility of losing money

Past performance is no guarantee of future results.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Neither asset allocation nor diversification ensures a profit or protects against loss.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Stock markets, especially foreign markets are volatile and can decline significantly in response to adverse issuer, political regulatory, market or economic developments.

You could lose money by investing in a money market fund. An investment in a money market fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing, always read a money market fund’s prospectus for policies specific to that fund.

The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance. The Bloomberg U.S. Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the U.S. dollar-denominated, investment-grade, fixed-rate, taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, mortgage-backed securities (MBS) - agency fixed-rate and hybrid ARM pass-throughs -asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS). The views expressed in the foregoing commentary are prepared by Strategic Advisers LLC. based on information obtained from sources believed to be reliable but not guaranteed. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing, without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice. This material may not be reproduced or redistributed without the express written permission of Strategic Advisers LLC.

Optional investment management services provided for a fee through Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser and a Fidelity Investments company. Discretionary portfolio management provided by its affiliate, Strategic Advisers LLC, a registered investment adviser. These services are provided for a fee.

Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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