Hurricanes are no joke. They are volatile and leave a path of destruction and devastation in their wake. So when it comes to advice about how to survive given two choices (riding the storm out or evacuating), evacuating to safety and then returning when it is all clear is the correct course.
When it comes to markets and your portfolio, however, when given the same two options (riding the storm out or evacuating), evacuating to safety is the wrong course of action. History shows that when markets inevitably give us volatile waters with which to navigate, that they ultimately recover losses pretty quickly on average:
As you will note from the chart above, the average market downturn is about 30% and the average breakeven is 1.7 years. Not to mention, with the rise in interest rates, bonds are actually yielding some return (close to 4%) now as well (even though we had to endure some pain to get there).
In the current market scenario, the downturn is here (about 20+% down in the S&P 500 and bonds being down about 15% in aggregate through 9 months), as the course with which history has provided, you do not want to miss the upturn by evacuating your portfolio.
When it comes to hurricanes – evacuate. When it comes to market downturns – ride the storm out.
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