Date: October 18, 2021

What Past Markets Tell Us About Volatility, Alternative Investments

While past markets can’t predict the future, they can offer some valuable lessons.

As financial advisors in Gilbert, AZ, below are 5 things we can learn from history:

Time in the Market is Better than Timing the Market

Attempting to time the market can be a very dangerous game. Not only does timing the market require you to correctly guess when the market will peak, but you also have to predict when it will dip. Constantly watching and refreshing your trading platform can cause you to leave solid investment gains on the table.

History shows that time in the market is a more effective strategy.

For example, if you invested in an S&P 500 index fund from 1995 through 2014, and didn’t sell during that timeframe, you would’ve gained 9.85 percent in annualized returns. However, if you sold at some point, and somehow missed the 10 best days during that period, your returns would’ve been cut nearly 40 percent.

Simply missing the best trading days of the year can rob you of valuable returns.

Market Volatility is Constant

Some investors look for their returns to smoothly increase over time, without any down periods at all. Though ideal, markets don’t operate this way. The only behavior that is certain with today’s markets is unpredictability.

Markets will almost always ebb and flow. Furthermore, volatility, though unpopular, isn’t necessarily a bad thing.

Know the difference between volatility and risk.

For starters, volatility is not risk. Volatility is the tendency for something to change rapidly and unpredictably. Risk is more serious, and is defined as the likelihood of loss or injury.

Sometimes, a stock price can change rapidly (volatility) because many investors are buying into it and selling their position in the short-term to take profits, causing the stock price to change accordingly. Another stock’s price may not change as rapidly, but can still struggle to remain profitable, causing investors to watch as its stock price gradually drops (risk).


Schedule a no-obligation conversation with the team at Watts Gwilliam and Company to see how we can help.


Down Markets Have Historically Recovered

While past performance isn’t necessarily an indicator of future results, it’s important to know that past market declines have all experienced recoveries afterward. It’s not necessarily a fast recovery, but past crashes have recovered, nevertheless.

Consider the most recent market downturn, The Great Recession of 2007-2009. The deepest downturn of the U.S. economy since World War II, the subsequent recovery in 2009 was the longest economic recovery dating back to the mid-19th century.

While the past cannot predict the future, market cycles are important to understand. Talk to a financial advisor about your long-term goals and what you can do during volatile times.

Some Stocks Zig When Others Zag

Not all stocks are created equal. Just because a stock is popular or always in the news, it doesn’t necessarily mean it’s a good buy. On the flipside, some stocks quietly and boringly increase without any news coverage, but consistently outperform others or establish a track record of solid dividends.

When picking stocks or any investment, look at them dispassionately. Sometimes, inadvertently becoming married to a particular stock you like can cause you to hold a bad stock for too long with the hopes of it somehow “coming back,” without the profits or underlying fundamentals to show for it.

Your goal is to find high-performing stocks that fit within your specific financial strategy, regardless of their popularity.

A Financial Advisor Can be Beneficial

There’s more to investing than just the stock market.

Though it’s important to find stocks that will generate returns overall, it’s even more important to build a holistic portfolio that is specifically designed for your goals and fits your risk tolerance.

DIY investing may seem like a good idea initially – anyone can be a successful investor when the market it good – but generally speaking, investing is more difficult than many people realize.

If you’re up for the task – really, up for the task! – there’s nothing necessarily wrong with investing on your own. But it can be risky. The investing world is massive, and it can be especially complicated when your financial life is complex. Solid analysis takes time to learn. Markets are affected by global conditions, not just what happens in our backyard.

To make things even more complicated, markets can operate like dominoes. The behaviors of one part of the market can send shockwaves to the whole, affecting many of its other moving parts.

Take alternative investments for high net worth individuals, for instance. In the years leading up to the Great Recession, real estate investors had a wonderful heyday. However, as we all know now, it was only a bubble. And when housing crashed, it was the tipping point for the Great Recession.

DIY investors may not have been able to understand the connection between real estate, government policy (low interest rates) and the surrounding markets, a big mistake that for many people, had big effects on their future.

Don’t Let Your Pride Prevent You from Getting Help

Being able to successfully handle your finances on your own can be rewarding, but it’s tricky! And remember, it’s your financial future that’s at risk!

Talk to a financial advisor about your situation. Ask questions. If you’re not confident with the answers you get, ask someone else! Putting your head in the sand and simply hoping things go your way can be just as dangerous as making a mistake with your investments.

Some companies are actually rewarding employees for getting professional financial help. See what Intel is doing for employees and why the company is making financial guidance a priority.

Watts Gwilliam and Company is a fee-only fiduciary financial advisory firm headquartered in Gilbert, Arizona that serves investors nationwide. Our team of financial advisors specialize in helping investors with more complex financial lives, such as high net worth individuals, professional athletes and high income earning business owners.

Don’t take the task of investing lightly. Schedule a no-obligation conversation to see how we can help.


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David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.