Editors' pick: Originally published Nov. 9.
Volatility in the stock markets should not be feared by investors, because any large losses are often reversed after the panic subsides. What's more, investing -- whether for retirement or the more immediate future -- is a not a short-term proposition, and making rash, emotional decisions can be dangerous.
The outcome of Brexit is a prime example of a shocking news event that "stunned investors and caused a mini-meltdown in global equity markets . . . for all of three days," said David Twibell, president of Custom Portfolio Group in Englewood, Colo. "Then markets reversed higher and many investors who panicked lost out on sizable gains."
The win by Donald Trump caught the markets off guard. Investors who attempted to guess the direction of the market on Tuesday before the results of the U.S. presidential election may not have benefitted, because market sentiment and major moves usually happen overnight, "making it almost impossible for most investors to benefit," Twibell said. "It's always tempting to make investment decisions based on major news events. Unfortunately, it rarely pays off. Ignore the noise."
Investors should avoid making rash, emotional decisions and get caught up in the initial market reaction, because their long-term investment strategy remains the best bet, said Twibell.
Selling a large chunk of assets to deploy the cash in an attempt to time the market winds up as a fool's game, said Ron McCoy, a portfolio manager on Covestor, the online investing company, and founder of Freedom Capital Advisors in Winter Garden, Fla. Knowing when to get back in the market is often the most difficult decision, and too many investors wait too long.