It’s a scary time for new and veteran investors alike as U.S. and international markets churn amid President Donald Trump’s unprecedented retaliatory tariff actions. Scarier still is no one knows what will happen next. But according to one long-time asset manager, one of the worst things investors rattled by market volatility can do now is to make changes to their existing strategy at the exact wrong moment.
Called “abandonment risk,” Mike Reidy, managing director at Principal Asset Management, says even a small drawdown in funds now can lock in losses and reduce long-term wealth accumulation when the market rebounds. Abandoning stocks now risks missing out on the upswing.
“The consequences can be particularly devastating to retirement outcomes,” Reidy says. “A missed market rebound can permanently reduce retirement income and quality of life in retirement.”
Volatility in the market is normal, although the past week has been particularly tumultuous. Still, Reidy and other investing experts say the worst thing to do now is react emotionally. Staying invested, even during downturns, is critical to long-term success, he says.
“During the COVID-19 downturn, investors who stayed invested saw dramatically better outcomes than those who exited,” he says. “Staying the course allows investors to harness market recoveries and avoid long-term opportunity costs.”
Exiting the market now out of fear is just another version of timing the market, the ultimate no-no in long-term investing. Staying invested now and continuing to make contributions as normal—assuming you can afford to—is the better play, advisors say.
The advice may seem simplistic in the face of such an unprecedented economic hit and upending of decades of globalization. And indeed, even those who have followed the markets closely for decades are a little shaken, with some of the wealthiest investors moving away from U.S. equities for safer shores abroad. Even seasoned investors have never seen anything like Trump’s actions.
Still, to Reidy’s point, research has found that the worst and best market days often happen in close succession—sometimes even on consecutive days—meaning it is basically impossible to time when they will occur and exit and reenter the market appropriately. Even the pros can’t do it consistently. And missing just a handful of the best days in the market over long time periods can drastically reduce an investors’ gains over their lifetime, compared to buying and holding through tough periods.
For example, missing the best 30 days of the S&P 500 over the past 30 years would reduce annual returns from 8% to 1.8%, according to calculations from the Wells Fargo Investment Institute. Missing the best 40 days during the same time period took gains to almost 0%. “Equities accumulated most of their gains over just a few trading days,” Wells Fargo researchers wrote.
Wells Fargo also found that the best days in the index were clustered in the middle of a bear market or a recession—times when emotions might be getting the better of investors who grow anxious during the uncertainty. Other research has found similar trends: 78% of the stock market’s best days occur during a bear market or the first two months of a bull market, according to Hartford Funds, an investment management company.
“These findings argue strongly for most investors to remain invested in the equity markets even during periods of high volatility,” Wells Fargo researchers write.
