In reviewing the last eight years, we find plenty of dramatic world events that could have caused an abrupt end to the bull market. Looking at the chart below, anyone could be forgiven for wanting to get out of the market at many points. However, doing so would have resulted in forgoing significant returns.
S&P 500 TOTAL RETURN INDEX WITH SELECTED HEADLINES (January 1, 2009 – April 30, 2017)
Source: S&P Dow Jones Indices LLC
When markets are positive for an extended period, investors begin to wonder how long it will last. They constantly fret about whether some event is going to turn into a market rout and agonize over whether they should stay invested or head for the sidelines.
Of course, pundits and commentators fuel the fire by issuing warnings about everything that could possibly go wrong with the world, the economy, markets and high-profile stocks. Meanwhile, economists and experts give conflicting predictions from the same data. Altogether, these potentially unsettling world events are amplified by opinion and media hype.
But for all the resulting sound and fury, usually the right thing to do is to stay fully invested. It’s not that these events are not real or don’t matter, it’s just that reacting to them should not be the basis for long-term investment decisions. History has also shown that the US economy and stock market are incredibly resilient with the capacity to weather them. While pullbacks are inevitable, the best course of action is to stay focused on fundamentals and your long-term goals.
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