Now why talk about the market downturn? Why not?

Comment by Andrew Patterson, Vanguard Senior International Economist

Vanguard believes that this is always the right time to talk about long-term investments. Now may be a particularly good time, however, with the stock market nearing all-time highs and uncertainty around. It is better to do pulse-testing when the markets are going down and the emotions are going up.

You may be already wondering: Are we trying to catch investors for the possibility of a market downturn? The short answer is no and yes. “No” because we can’t predict what the markets will be like in the coming days, weeks or even months. “Yes” because we know that sometimes significant recessions are paid into investments. Disciplined investors accept it and sometimes remain steadfast in their goal for stormy weather.

The economy and the market are sending mixed signals

As my colleagues Josh Hart, Alexis Gray and Sean Raitha recently wrote, most major economies remain in the Covid-1 pandemic epidemic, and Vanguard hopes that fiscal and monetary policy will remain supportive in the coming months. But in the end, in the distant future, the undesirable support of aid as Covid-1 as has been resolved and economic activity will be raised similarly will have an impact on the economic fundamentals and financial markets.

Central banks have indicated their willingness to keep interest rates below 2021, but far-sighted markets will eventually pay the price. This means that the lower rates that helped the higher equity valuation will eventually start to rise again. Slightly higher inflation at one stage is also a risk that we have been discussing and which we have outlined. Vanguard Economic and Market Outlook for 2021: Moving Towards Dawn.

As we mentioned in our annual outlook, equity indexes in many developed markets seemed to be fairly valuable at the top end of our estimates of fair value. To that end, the Standard & Poor’s 500 Index finished 2020 at a record high and has already done so six more times in 2021.

The volatility that exists with recent high-profile estimates in a handful of stocks and even products only exacerbates the uncertainty. (Greg Davis, Vanguard’s chief investment officer, recently wrote about how investors should react if stocks go beyond originality.)

So let’s talk about the value of long-term investment

Note: Intraday volatility is calculated as the daily range of trading prices ([high−low]/ Opening price) for S&P 500 index.
Source: Vanguard calculations based on data from Thomson Reuters datastream.

Vanguard is not in the business of calling the next steps in the market. We Is The business of preparing investors for long-term success. And that means instructing them to focus on things that can control them: having clear, appropriate investment goals; Maintaining well-diversified portfolios across asset classes and regions; Keep investment costs low; And taking a long-term view.

Vanguard’s policy for successful investment Each of these principles has been discussed in detail. For times like these, I will pay special attention to their end. As the picture above shows, market volatility is a fact of life for investors and so is the market downturn. But the market usually rewards well-disciplined investors who take a long-term view.

This is good guidance regardless of whether there could be a recession on the horizon.


All investments are at risk, including the potential loss of money you invest. Diversity does not guarantee gain or protect from loss.

Past performance is not a guarantee of future results. The performance of an index is not an accurate representation of a particular investment, as you cannot invest directly in an index.

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