Gyrating markets can unnerve investors and shake the foundation of their long-term investment strategies. While volatility is an inevitable element of investing, the market has tended to reward those investors who don’t get rattled during market declines and stick to a long-term investment strategy.

In 2020, U.S. equity markets fluctuated wildly, with the S&P 500 stock index declining more than 30% in March, only to rebound in dramatic fashion, ending the year up 16.3%. It is precisely during these periods where long-term investors are rewarded and the price of missing the market’s best days can be as costly as — or more costly than — avoiding its down days. It is time in the market, not timing the market that matters, and it is during these periods when we would remind investors to:

1. Focus on the long term

Don’t let headlines drive your investment strategy. Resist the knee-jerk reaction to sell investments or time this market. Back in March 2009, the Standard & Poor’s 500 Index (S&P 500) was down 54%, but the market rebounded and delivered a historic bull rally. Retirement plans are inherently long-term investments. Short-term market volatility shouldn’t change long-term saving or investing strategies. Retirement strategies should be based on an investor’s personal situation, goals, risk tolerance and time horizon until retirement. It is natural to have swings in market pricing, both up and down. And keep in mind that volatility works in both directions, and it is upside volatility that generates strong returns. This is why investors can ill afford to exit the market after a decline. The largest upward movements in stock prices often occur off the bottom of market declines. 

The following chart and table illustrate the danger of missing the market’s best days:

This chart illustrates stock market recoveries from the trough of each of the last four bear markets:

2. Control what you can control

Your actions, not the market, have the greatest impact on whether or not you reach your retirement goals. Maximize your contributions — that can have the largest single effect on your retirement outcome. Now that the market has sold off, your periodic contributions buy more shares for the same dollar amount invested. Another thing you can control is your career. In the earlier stages of your retirement life cycle, human capital — the amount you earn and can thus contribute — is the primary driver of retirement success. Continue to hone your job skills, maximize your earnings potential and increase your contributions whenever possible. Lastly, control your emotions. Avoid behavior that is hazardous to your wealth. Selling investments after they have experienced significant declines can be the worst mistake most investors make next to not contributing enough to their retirement plans.

3. Consider utilizing professional management

Professionally managed retirement asset allocation solutions can help you navigate the turbulence and keep you from making poor decisions during times of market volatility.

Asset allocation funds

Target date and risk-based asset allocation funds provide a well-diversified solution that is focused on the longer-term goal of retirement.* The date in the name of the target date fund is the assumed date of retirement. The asset allocation becomes more conservative as the fund nears the target retirement date; however, the principal value of the fund is never guaranteed.

The following retirement investing adage can help put market volatility into perspective whenever it occurs: Share prices were printed, as a courtesy, for investors who sold shares yesterday in order to buy a home, make a major purchase in retirement, etc. Your share price won’t be printed for many years from now — when you reach your retirement goal.

* Asset allocation and balanced investment options are subject to the risks of their underlying investments