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Scotia Wealth Management

Bear necessities: strategies that can help you weather market volatility

Market Update – April, 2020

April 7, 2020

The spike in equity market volatility has resulted in renewed anxiety for many investors. March 23, 2020 marked the most significant 30-day decline in the history of the S&P 500 since 1940. While it may be difficult to maintain composure during periods of market declines, making reactive, emotionally-driven decisions may be more detrimental to your long- term financial success than the drawdown itself. History shows that periods of turmoil and steep market declines have subsequently been among the best times to invest. Longer-term perspective can help you manage through the market turbulence and ensure you are positioned for a rebound, which is inevitable too.

Dramatic market swings can be unsettling, but with uncertainty present at all times, they have always been a part of the investing environment. Periods of heightened volatility can take a toll on investors but as the chart in Figure 1 shows, the S&P 500 Total Return Index has delivered a cumulative return of over 1000% since 1990 despite experiencing two recessions, an average intra-year decline of 14%, 7 bear markets (including the current one), and 15 corrections. Investors that have stayed the course have been rewarded, and a $100,000 investment at the start of 1990 would have grown to over $1,000,000 – increasing tenfold – by the end of February 2020.

Staying the course in periods of extreme market volatility may be difficult, but making drastic changes to your investment strategy based on short-term events can be detrimental to your long-term financial success. Notably, it is when asset prices decline that their future long-term expected returns typically increase. History has shown that markets move in cycles, and drawdowns have been followed by powerful rallies. If you sell and remain on the sidelines during a recovery, the impact on your wealth can be material, even if you only miss a few of the best days in the market.

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