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Why Investor Discipline Matters When Markets Are Calm

The stock market has performed well not only over the past year, but since the beginning of 2017. Over this three-year period, the S&P 500 has risen by over 45%. Investors who were able to stay invested through the volatility of late 2018 and during turbulent periods of 2019 have been rewarded.

Markets have generated great returns despite a constant "wall of worry." This is still the case with heightened focus on geopolitical unrest in the Middle East and global trade. So far in 2020, markets have taken these developments in stride, with only a couple of small pullbacks. However, not only could these issues intensify over the course of the year, but the upcoming presidential elections could spur investor concerns. Unforeseen events are bound to occur as well.

Investors should remember that it's completely normal for this to happen. Just as pilots often remind passengers to keep their seatbelts fastened even when the air is calm, periods of optimism like the present are the best times for investors to stay balanced and prepare for future uncertainty. After all, as any long-term investors knows, such low levels of volatility are unsustainable, and markets don't rise in a straight line indefinitely. Even though we neither hope for nor anticipate a significant market pullback in the near-term, it's still important to be prepared nonetheless.

Ultimately, investing and achieving long-term goals are as much about our behavior as they are about having appropriate financial plans. For long-term investors, the answer to market volatility isn't to jump in and out of the market. Instead, it's to stick with a well-balanced portfolio that can weather any storm, and that allows one to sleep well at night too.

Even experienced investors can overreact to short-term headlines that drive fear and panic. Those investors who are better equipped to handle this by staying invested and diversified, especially by preparing when markets are calm, are in a better position to achieve their goals.