{"id":11399,"date":"2022-02-03T13:06:43","date_gmt":"2022-02-03T21:06:43","guid":{"rendered":"\/\/wealthfront.x5view.co\/?p=4842"},"modified":"2025-03-04T12:48:17","modified_gmt":"2025-03-04T20:48:17","slug":"invest-despite-volatility-2-2","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/invest-despite-volatility-2-2\/","title":{"rendered":"Why You Should Keep Investing When the Market Is Volatile"},"content":{"rendered":"\n

When markets are volatile (as they are right now), investors sometimes get uncomfortable. When your portfolio temporarily loses value, it can be very tempting to try and minimize your losses by stopping your regular investment account deposits. Unfortunately, when it comes to investing in a volatile market, what feels right is often wrong. In this post, we\u2019ll show you why it\u2019s important (and even beneficial) to keep investing despite market volatility. <\/p>\n\n\n\n

In an investing seminar I gave years ago, I showed members of the audience three graphs depicting different market behavior. I asked them which type of market they would prefer to invest in periodically each year if they didn\u2019t intend to withdraw their money until 10 years from now. Here are the graphs illustrating an example of how an index-based ETF could fare in three potential market scenarios:<\/p>\n\n\n\n

\"Chart<\/figure>\n\n\n\n
\"Chart<\/figure>\n\n\n\n
\"Chart<\/figure>\n\n\n\n

You probably won\u2019t be surprised to learn that Chart A was the most popular choice, while Chart C got the fewest votes. However, you might be surprised to discover that Chart C actually represents the best market environment to invest in, while Chart A is the worst of the three.<\/p>\n\n\n\n

Investing in different market conditions<\/h2>\n\n\n\n

Let\u2019s dig into the numbers associated with each scenario. <\/p>\n\n\n\n

Investing in a steadily rising market<\/h3>\n\n\n\n

Table 1 shows an example of the potential price and number of shares of an index-based ETF that an investor might buy in a steadily rising stock market (Chart A) if they were to invest $1,000 on January 2 each year for the next 10 years:<\/p>\n\n\n\n

\"Table<\/figure>\n\n\n\n

As you can see, our investor will own 46.55 shares of the ETF, which will be worth $23,275.49 when they\u2019re ready to liquidate their portfolio after 10 years.<\/p>\n\n\n\n

Investing in an increasing but volatile market<\/h3>\n\n\n\n

Now imagine our investor faces a rising but volatile market over the next 10 years. Table 2 displays the potential purchase price per share and the number of shares purchased for the same ETF in those market conditions:<\/p>\n\n\n\n

\"Table<\/figure>\n\n\n\n

On the 10th anniversary of their original investment, the investor will own 48.42 shares of the ETF, which will be worth $24,209.76 when they\u2019re ready to liquidate their portfolio. Interestingly, investing at a constant clip in a rising but volatile market leads to greater value than investing at a constant clip in a steadily rising market. That\u2019s because the investor gets to buy investments at a relative discount due to interim volatility. <\/p>\n\n\n\n

Investing in a declining market<\/strong><\/h3>\n\n\n\n

Table 3 shows an example of the potential price and number of shares of an index-based ETF an investor might buy in a steadily declining stock market if they were to invest $1,000 on January 2 each year for the next 10 years:<\/p>\n\n\n\n

\"Table<\/figure>\n\n\n\n

Shockingly, this third scenario leads to the greatest value upon liquidation by far. That\u2019s because in effect you\u2019re buying the ETF at a steep discount. It doesn\u2019t matter that the ETF declined during your investment period. All that matters is what it\u2019s worth when you\u2019re ready to liquidate your account.<\/strong><\/p>\n\n\n\n

\"Chart<\/figure>\n\n\n\n

You can make money in a volatile market<\/h2>\n\n\n\n

The point of our example is that interim volatility doesn\u2019t matter<\/strong>; a volatile market can actually work to investors\u2019 advantage because it gives them opportunities to buy at a relative discount. That doesn\u2019t mean you should wait for a volatile market to invest, because it\u2019s almost impossible to time the market. The lesson is you should ignore the behavior of the market if you intend to invest steadily and don\u2019t plan on touching the vast majority of your account value for a number of years.<\/p>\n\n\n\n

Markets generally rise over time. So if your investment horizon is fairly long (at least 3-5 years), then what happens in between doesn\u2019t matter very much as long as your portfolio is ultimately worth more than what you paid for it.<\/p>\n\n\n\n

Don\u2019t be driven by fear of loss<\/h2>\n\n\n\n
Wealthfront automates investing best practices to help you build long-term wealth. Open an Automated Investing Account<\/a><\/div><\/div>\n\n\n\n

Loss is uncomfortable, even if it\u2019s temporary. But it\u2019s important to remember that volatility is a normal part of investing, and you don\u2019t actually lose any money unless you sell your investments for less than what you paid for them. History shows that markets tend to rise in the long run, which means if you stick to your strategy and keep investing, you\u2019re likely to come out ahead. <\/p>\n\n\n\n

We hope this post, which was inspired by an example in Elements of Investing<\/em> by Wealthfront CIO Burt Malkiel<\/a> and our investment advisory board member Charley Ellis<\/a>, shows how little effect current market conditions can have on the eventual outcome of your investments. All you need to do is make a plan to invest regularly and stick to it no matter what the market does from day to day. <\/p>\n","protected":false},"excerpt":{"rendered":"

When markets are volatile (as they are right now), investors sometimes get uncomfortable. When your portfolio temporarily loses value, it can be very tempting to try and minimize your losses by stopping your regular investment account deposits. Unfortunately, when it comes to investing in a volatile market, what feels right is often wrong. In this […]<\/p>\n","protected":false},"author":4,"featured_media":15588,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1315,1282],"tags":[1290,1522,1392,1393,1984,1709,1301,1985,1283],"coauthors":[99],"class_list":["post-11399","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-insights","category-investing","tag-andy-rachleff","tag-behavioral-economics","tag-burt-malkiel","tag-burton-malkiel","tag-declining-market","tag-market-volatility","tag-investing-mistakes","tag-rising-market","tag-volatility"],"acf":[],"yoast_head":"\nWhy You Should Invest Despite Volatility | Wealthfront<\/title>\n<meta name=\"description\" content=\"It\u2019s tempting to stop investing when markets turn volatile. 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