Keeping Perspective in Volatile Markets

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Thought of the week: JPMorgan Weekly Market Recap

This week marks the 30th anniversary of Black Monday, October 19,1987, when the Dow Jones Industrial Average fell 508 points and the S&P 500 saw a one-day loss of -20.5%. The market has certainly come a long way since then, having weathered two more bear markets and continuing to reach all-time highs. Given today's equity market environment in which valuations are slightly elevated and volatility remains subdued, many investors worry the next market crash is imminent and therefore want to "wait for a better time" to put money to work. However, trying to time the market necessarily means times out of the market, and an ending portfolio value depends more on long-term returns rather than what single day you choose to invest.

To illustrate this, JPMorgan simulated two $100,000 investments in the equity market, one of which was initiated on October 16,1987, the day before Black Monday, and the other after the close of business on Black Monday. Today, the investor who arguably had the worst timing over the past 30 years has an annualized return of 9.7%, and the investor who was lucky enough to miss Black Monday has an annualized return of 10.5%.

The main message is that investors shouldn't focus on the best time to invest, but rather commit to investing in an appropriate way for the long run and watch their money grow over time. Additionally, risk tolerance and time horizon are two critical pieces that must be taken into account when developing a strategy that works for you. It is important to remember these factors when you read or hear conflicting information in the news. Keep in mind that we, as your financial advisors, know what your goals and objectives are for your portfolio - the commentators on CNBC do not.