The theme this week on the Retirement Quick Tips Podcast is: How To Use Stock Market Volatility In 2022 To Your Advantage

Today, I’m talking about a promise you’ll need to make to yourself if you want to consistently profit from uncertain and volatile times in the stock market. It’s a very simple promise: 

Commit to never selling and going to cash or bonds when the stock market is broadly lower. It’s important to mention that this applies to your entire stock portfolio, and not an individual stock. If you own an individual stock that’s gone sour, then it’s usually better to get out and sell once the future prospects start to diminish, rather than waiting for a turnaround.

But where your entire portfolio or your 401k is concerned, especially when you’re well-diversified, selling in volatile time periods when the stock market has already dropped 10-20% or more will only hurt you in the long-run, so it’s incredibly important to stay disciplined and commit to never selling or going to cash/bonds when the stock market is in a downturn. 

Abandoning this commitment has serious long-term consequences for your portfolio returns.

A Vanguard Advisor Alpha study quantified this and your behavior, which mostly boils down to staying disciplined with your strategy in good times and bad, was responsible for about 1.5% of your annual returns over the long-run.

Sounds like not much, but that’s a huge difference. 2 investors with all else equal who both started with $1 million, will have vastly different results over a 20 year time period. Investor A who stayed disciplined, calm, cool and collected at a 7% average return turned his or her million into about $3.87 million over that 20 year time period. Investor B who’s returns were reduced by 1.5% because of emotional investment decisions, had $2.92 million over that same time period - a difference of over $950,000! 

So make a promise to yourself that you’ll never abandon your stock portfolio in volatile times and I’m confident you’ll see that reflected in your long-term portfolio values. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance