Weathering Uncertain Markets

Key Principles for Lifetime Investing

Managing an investment portfolio for the long term is partly a test of willpower. Your emotions and instincts will be urging you to react to short-term news and market movements, even though your investment goals might be far away.

Discipline is vital to weathering uncertainty, but it is easier said than done. By following some simple rules you can train yourself to prepare for whatever the future throws at you. Know the importance of staying invested and avoid reacting in ways that could derail long-term financial goals. Following the principles below may help to position your portfolio to weather uncertain markets.

Act on Insight, not Instinct

Markets do not necessarily react to events in a rational manner. Boom and bust cycles, together with asset bubbles and crashes, have been a feature of investing as long as markets have existed.

The reason is obvious: investors are human beings, and their decisions are often driven by emotional biases rather than careful thinking. While most investors understand the theory of “buying low, selling high”, many people don’t put it into practice and tend to fear losses more than missing out on potential gains, even if the end return would be the same.

This means your instincts might urge you to get out of the market at the bottom of a downturn, to avoid the possibility of further losses. But if you do this you run the risk of selling low and missing out on some of the best value opportunities.


Source: Bloomberg, March 2020. All figures represented in USD. For illustrative purposes only. It serves as a general summary, is not exhaustive and should not be construed as investment advice. The strategy described are hypothetical and conceptual.

Keep things in perspective and stay invested

Your biggest enemy in a market correction is yourself.  There is nothing worse than panic selling. It’s natural for the market to have ups and downs. But if you rush and sell the minute a downturn starts, you are left out when stocks rebound.

Market corrections and subsequent recoveries happen more often and faster than we think. When you’ve become comfortable watching your investments consistently go up, it can be quite jarring to watch them fall off the cliff. But it shouldn’t chase you away from the stock market, especially if you have a long horizon.

To provide historical context, the table below illustrates how the stock market responded during the past major growth scares and bear markets. It also shows the period of positive market performance in the 12 months that followed these crises.

Keep things in perspective and stay invested


Source: Morningstar as of 2/28/20. Returns are principal only not including dividends. U.S. stocks represented by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You can’t invest directly in an index.

You Can’t See the Future, But You Can Plan For It

No matter how much information you have, it is virtually impossible to predict for any length of time exactly when markets will rise or fall. This is problematic since only a few good days can account for a large part of market’s long-term total return.

So among the best ways of planning for an uncertain future is to stick to a long-term strategy and stay invested. If you miss just a few of the best days it can have a massive impact, as the following chart shows.

Plan for the Future

Sources: Sources: BlackRock, Bloomberg as of March 2020. Stocks are represented by the S&P 500 Index, an unmanaged index that is generally considered representative of the US stock market. Past performance is no guarantee of future results. It is not possible to invest directly in an index. For illustrative purposes only. It serves as a general summary, is not exhaustive and should not be construed as investment advice. The strategy described are hypothetical and conceptual.

Diversify to Manage Risk

“Don’t put all your eggs in one basket” is equally good risk management advice for grocery shopping and investing. Not every asset class will be increasing (or decreasing) in value at the same time, so investing across a wide variety of assets should help smooth returns over time.

Assets tend to move together during periods of market stress, in part owing to a common instinctual urge to sell to avoid further losses. So a crucial part of weathering market stress is ensuring you have exposure to a mix of assets, including alternatives such as commodities, real estate and non-traditional investment funds.

Annual performance of selected asset classes (in USD)

Why it pays to stay invested

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, 31 March 2020. Notes: The table shows annual index total returns (income or dividends reinvested) in U.S. dollars, indices are unmanaged and therefore not subject to fees. 2020 shows year to 31 March 2020. Indexes or prices used are: U.S. equities – MSCI USA Index, EM equities – MSCI Emerging Markets Index, Europe equities – MSCI Europe Index, Japan equities – MSCI Japan Index, DM gov. debt – Bloomberg Barclays Global Treasury Index, Emerging debt – JP Morgan Emerging Market Bond Index (EMBI) Global Composite, High yield – Bloomberg Barclays Global High Yield Index, IG credit – Barclays Global Corporate Credit Index, Commodities – Commodity Research Bureau (CRB) Index, Cash – Bloomberg Barclays U.S. Treasury Bill Index, REITs –S&P Global Real Estate Investment Trust (REIT) Index, Infrastructure – S&P Global Infrastructure Index. Annualised column shows the annualised total return over the last 10-years from 31 March 2020.

Invest with Discipline

One way to conquer your emotions and remove the temptation to jump in and out of the market is to set aside a defined sum to invest at regular intervals, usually once a month. This allows you to budget effectively and can smooth the impact of price volatility, since you will buy more shares or fund units when prices are low and fewer when prices are high. This means returns are likely to be better compared to jumping in and out or investing lump sums on an ad-hoc basis.

The benefits of this “dollar cost averaging” technique can be seen in the following hypothetical example. An investor who commits a smaller sum each month benefits when the share price declines, making the average cost per share lower. Of course, the share price can also rise, making the shares more expensive.

Illustrative strategy 1: Systematically invest $1,000 per month every month for a year regardless of share price

Why it pays to stay invested

Illustrative strategy 2: Invest $12,000 as a lump sum at the beginning of the year

Why it pays to stay invested

The information provided is for illustrative purpose only and is not meant to represent the performance of any particular investment. Systematic investing does not guarantee a profit and does not protect against loss in declining markets. Systematic investing involves continuous investing so investors should consider their ability to make periodic payments in all market environments. Investing involve risk, including the possible loss of your entire principal. All figures are represented in USD.

Investors who stay calm, stay invested and stay diversified will be the ones who best weather the storms and reap the rewards when the clouds dissipate and the sun re-emerges.

Consider strategies that can help you manage volatility while staying invested.

We continue to advocate for portfolio resilience while maintaining long-term perspective.