Market volatility: big swings that typically cause investors great concern no matter the rise or fall. But what is the root of the anxiety? Behavioral science suggests that humans are uncertainty reduction machines. That’s one of the reasons why we can get a reward for putting money at risk in the markets… that is, if we stay invested.
Which brings us to the market volatility of Q4 2018. Headlines relating to the Dow “plunging” more than 800 points on October 10th – and it being the “worst drop” since February – have made some quite nervous about what’s coming next. As behaviorists would predict, these facts lead to concerning questions: Are we experiencing a “correction” in the stock market? Is there a case for an extended bear market? Is there something altogether unpredictable around the corner?
So what would a behavioral finance professional (like myself) typically say to investor? “Don’t overreact!” While this phrase actually tends to make things worse or make people react more, there is something to this idea.
When markets go up, the general idea is that we should avoid buying investments that have risen too much, and when markets go down, the idea is to not sell the investments that are not doing well. Why? Because we tend to overreact. When markets are doing well, we can become euphoric and may “buy at all-time highs” to make more money. And when markets are going down, we can become despondent and may “sell at all-time lows” to avoid further losses. Overreaction can cause people to fall into a losing strategy – buying high and selling low. But how are we supposed to know when markets are at an all-time high or at an all-time low?
The answer is: It is hard to predict and time the markets. Investors are only human and, in the moment, buying or selling may seem like the right decision. The future is uncertain whereas hindsight is 20-20. Research from DALBAR (QAIB 2017) suggests that the average equity mutual fund investor gives up about 3% in returns each year – relative to just holding the fund and staying invested – in part because of “overreactive” buying and selling behavior.
Instead of telling you not to overreact, here are some tips to help control your response as the markets move:
Ultimately, you need to consider whether market volatility is truly relevant to you or not in that current cycle. Don’t be alarmed by market uncertainty – it’s all a normal part of investing. And if you have any questions, don’t hesitate to reach out to your J.P. Morgan advisor to discuss how you can keep your eyes— and investments—focused on your long-term goals.
Learn more about becoming a J.P. Morgan Private Bank client.
Please tell us about yourself, and our team will contact you.
Purpose of This Material
This material is for information purposes only. The information provided may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to risks. This material is confidential and intended for your personal use. It should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. Please read this Important Information in its entirety.
Legal Entity and Regulatory Information
In the United States, Bank deposit accounts and related services, such as checking, savings and bank lending, may be subject to approval are offered by JPMorgan Chase Bank, N.A. Member FDIC.
JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. JPMCB and JPMS are affiliated companies under the common control of JPM. Products not available in all states.
In the United Kingdom, this material is issued by J.P. Morgan International Bank Limited (JPMIB) with the registered office located at 25 Bank Street, Canary Wharf, London E14 5JP, registered in England No. 03838766. JPMIB is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. In addition, this material may be distributed by JPMorgan Chase Bank, N.A. (“JPMCB”), Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers or by J.P. Morgan (Suisse) SA, which is regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA).
In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMIB and/or JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. Receipt of this material does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. To the extent this content makes reference to a fund, the Fund may not be publicly offered in any Latin American country, without previous registration of such fund´s securities in compliance with the laws of the corresponding jurisdiction. Public Offering of any security, including the shares of the Fund, without previous registration at Brazilian Securities and Exchange Commission – CVM is completely prohibited. Some products or services contained in the materials might not be currently provided by the Brazilian and Mexican platforms.
We believe the information contained in this material to be reliable and have sought to take reasonable care in its preparation; however, we do not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. We do not make any representation or warranty with regard to any computations, graphs, tables, diagrams or commentary in this material which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in it constitute our judgment based on current market conditions and are subject to change without notice. We assume no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, view expressed for other purposes or in other contexts, and this materials should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward looking statements should not be considered as guarantees or predictions of future events. Investors may get back less than they invested, and past performance is not a reliable indicator of future results.
Risks, Considerations and Additional Information
There may be different or additional factors which are not reflected in this material, but which may impact on a client’s portfolio or investment decision. The information contained in this material is intended as general market commentary and should not be relied upon in isolation for the purpose of making an investment decision. Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document is intended to constitute a representation that any investment strategy or product is suitable for you. You should consider carefully whether any products and strategies discussed are suitable for your needs, and to obtain additional information prior to making an investment decision. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by JPM and/or its officers or employees, irrespective of whether or not such communication was given at your request. JPM and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions. Contact your J.P. Morgan representative for additional information concerning your personal investment goals. You should be aware of the general and specific risks relevant to the matters discussed in the material. You will independently, without any reliance on JPM, make your own judgment and decision with respect to any investment referenced in this material.
J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document. JPM or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.
References in this report to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the brand name for the private banking business conducted by JPM.
If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan representative.
© 2018 JPMorgan Chase & Co. All rights reserved.
INVESTMENT PRODUCTS ARE: • NOT FDIC INSURED • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
Bank deposit products, such as checking, savings and bank lending and related services are offered by JPMorgan Chase Bank, N.A. Member FDIC. Not a commitment to lend. All extensions of credit are subject to credit approval.