Investing in volatile markets

Over the past few years, the world has fundamentally changed. We are liv¬ing through a pivotal time in history having navigated a global pandemic, heightened geopolitical uncertainty, and volatile financial markets, and witnessed the end of a 40-year period of declining interest rates.

Despite everything seeming radically different to what many of us may have experienced, it does, in fact, rhyme with the past, particularly the early 1960s. During that period, interest rates bottomed out after decades of decline and we witnessed the rise of the Cold War era. Sound familiar? While the narrative may not play out exactly the same, there are a number of lessons we can learn from historic data that will allow us to find the right place to plant our feet and stand firm while weathering the volatile conditions around us.

Perspective is everything
Market fluctuations are a natural part of investing. Witnessing short-term market movements can be unnerving, especially if the value of your investment is affected. The reality is that market corrections are inevitable, as we’ve seen during previous periods of uncertainty and market volatility. By way of exam¬ple, when looking at the S&P 500 Composite Index since 1985 (Fig.1), there were several instances where the index entered into ‘bear market’ terri-tory. Each disruption was different, but the common thread that runs through is that these downturns didn’t last long. Apart from the pandemic-induced market downturn in 2020 that lasted all of 33 days (the shortest bear market in history), the average duration of a bear market is about one year. In other words, volatility has always given way to growth, usually, in short order and over the long-term, the trend of the market is always up.

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