A true long-term investment perspective should include both the future and the past. By taking into account events that shaped the markets and their subsequent recoveries, we can learn from patterns of the past and maintain perspective about the future.
From a historical perspective, investors who fled the equity market to ‘de-risk’ or attempt to time the bottom may have missed out on potential market snapbacks after the bottom eventually was hit. Historically, equity markets have averaged almost 30% in the first six months following the lowest point of a cycle. Time is the greatest diversifier and investors should aim to practice discipline, not heroism.
Timing any market is extremely difficult–timing the bottom of a bear market is nearly impossible. Dislocations are uncomfortable, but they have been historically temporary. If history alone is any indication, markets should eventually rebound. But there will continue to be uncertainties and volatility along the way.
Liz Young, CFA, director of market strategy, BNY Mellon Investment Management.