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  • Writer's pictureHilary M.K. Poff | CFA

How to Ride Out the Wave during a Stock Market Sell-Off

The stock market’s remarkable run since the pandemic lows has come to an end. Canadian and American stocks entered 2022 at record levels, but they are now well off all-time highs. Investor optimism has been undermined by a combination of rising interest rates, soaring inflation at 40+ year highs, and concerns of a recession.

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This perfect storm of economic headwinds has sent global stocks tumbling lower.

Nervous investors may think one of the best strategies is to sell and take their losses before stocks fall even further. But history shows us this would be a mistake. It might sound like a cliché, but investing for retirement is a marathon, not a sprint.

It’s not always easy to do. When everyone else is running for the exits, investors need to go against their fight or flight instinct. Because when it comes to Bay Street and Wall Street, it’s better to hold your ground than run.

How Long Does It Take for Stocks to Recover from a Sell-Off?

Despite concerns about a bear market, it’s important to understand that the broader markets face regular volatility. A 2019 report found that between 5% to 10% corrections on the S&P 500 happen quite often.

Since 1946, there had been 84 declines of 5% to 10%; that’s slightly more than once a year. The average time it takes for the stock market to recover from these modest declines is just one month.

Bear markets do happen, but much less frequently. There have been 13 bear markets since World War II. On average, it takes 23 months for stocks to recover all of the losses.

Not all bear markets or sell-offs are the same. In 2020, it took the S&P 500 less than five months to go from its March lows to a new record, making the 2020 bear market the shortest in history and the recovery the fastest on record.

To put that into perspective, it took the stock market four years to reach record levels after the Great Recession of 2007-2008, and the dotcom crash of 2000.

For investors that sold into those sell-offs, some have never recouped their losses.

What history shows us is that the stock market always recovers from a sell-off, no matter how big it is. Some recoveries take longer than others, but the stock market always goes on to hit record levels.

Investors that are saving for retirement might be wondering what to do with the markets in the red. If you’re invested in good companies, you’re more interested in long-term results (10, 20, and 30 years). The best returns come from owning good stocks for long periods of time.

Why Should You Trust Sharp Asset Management for Your Retirement Planning?

Stock market volatility is par for the course. That doesn’t mean it’s easy to watch the broader markets lose more than 20% of their value. When it comes to investing, the wealth management professionals at Sharp Asset Management understand the stock market always recovers. And when it comes to retirement goals, the investing horizon is long-term.

If you’re in Toronto, Mississauga, or anywhere in the GTA and are looking for wealth management professionals to help with your retirement goals, the private investment counsellors at Sharp Asset Management can help.

Sharp Asset Management Inc. is an independent portfolio management firm that is 100% owner-operated. Being independent, means we are not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients.

At Sharp Asset Management our clients have direct access to a dedicated investment professional that provides them with personalized service, including extensive quarterly reporting. This also allows us to respond more quickly to changing client needs.

To learn more about investing with Sharp Asset Management, contact us today.

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