Digital Advisor can help you weather stormy markets

Read time: 2 to 4 minutes

Challenging markets can test the patience of even the most disciplined investor. You may be tempted to wait out a market downturn from the sidelines. But history has shown that bailing on your long-term financial plan may not be the best strategy for your money.

Instead, Vanguard suggests these 4 principles for weathering stormy markets: Keep your long-term perspective. Stay balanced. Stay the course. And—most importantly—keep your Vanguard Digital Advisor® investor profile up to date. That way you’ll always have a personalized saving and investing plan that’s been stress tested to handle challenging market conditions.

1. Keep your long-term perspective

Down markets aren’t new to Vanguard—we’ve been here before. And we’ve also been through the market rallies that often followed.
Graph shows the Dow Jones Industrial Average from 1978 through 2022. The Dow was close to 3,000 at the beginning and is close to 35,000 in 2023. The graph shows different points when the market went down, including the dot-com bubble burst in 2000, the 9/11 terrorist attacks in 2001, the 2007-08 financial crisis, the 2015-16 stock market selloff, and the COVID-19 stock market crash in 2020. Despite these downturns, the market went up nearly 32,000 points over this 43-year period.
The fact that any type of investment has done well in the past doesn’t mean it will do well in the future. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Everyone reacts to market ups and downs differently. That’s why Digital Advisor gets to know your needs, goals, and comfort with financial risk before building your personalized financial plan. Then we stress test that plan against thousands of market scenarios to help give you the best chance for success—no matter what the markets do.

2. Stay balanced

We build your investment mix to help it withstand down markets. If you sell your investments when the market takes a downturn, you’re taking a risk—a very big one—that you’ll miss out when markets bounce back. Digital Advisor checks your account each business day and rebalances it as needed, helping keep you on track during market ups and downs.

The chart below uses the down markets of 2020—when COVID-19 hit—to show why it can be unwise to try timing the market by moving to cash:
This chart compares the outcomes of 3 different investors who each started 2020 with the same amount, but because of how they reacted to market turmoil, ended up with different amounts. An investor who started 2020 with $100,000 in a 60% stock/40% bond portfolio and moved to cash would have ended the year with $81,571; the same investor who moved to cash for just 2 weeks would have ended the year with $102,946; and an investor who stayed the course would have ended the year with $114,729.

The fact that any type of investment has done well in the past doesn’t mean it will do well in the future. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

The hypothetical 60% stock portion is represented by the S&P 500 index, the 40% bond portion is represented by the Bloomberg US Aggregate Bond Index, and the cash portion is represented by the Bloomberg US Short Treasury 3–6 month daily return from January 1, 2020, to December 31, 2020.

Source: Vanguard calculations, using data from Morningstar.

3. Stay the course

Sticking to your investing plan is a core belief at Vanguard. And we built our Digital Advisor advice engine with this perspective in mind.

If you get out of the market when prices are falling, you could miss out on a recovery. No one knows when a recovery will start or how long it will take for the market to bounce back. So leaving the market—even for a few days—can make it harder to reach a long-term goal like retirement.

This chart shows the potential value of staying the course over a 20-year period:
Hypothetical returns from January 1, 2002–December 31, 2021
This chart shows the potentially huge negative effect of trying to time the market versus staying the course. It covers the 20 years beginning on January 1, 2002, and ending on December 31, 2021. For this time period, a hypothetical investor who started with $100,000 in a 60% stock/40% bond portfolio but missed the market’s best 25 days would have ended up with $88,895. An investor who stayed in the market the entire 20-year time frame would have ended up with $342,470.
The fact that any type of investment has done well in the past doesn’t mean it will do well in the future. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

For the 60% stock/40% bond portfolio, stocks are represented by the S&P 500 index and bonds are represented by the Bloomberg US Aggregate Bond Index from January 1, 2002, to December 31, 2021.

Source: Vanguard calculations, using data from Morningstar.

4. Keep your Digital Advisor investor profile up to date

You get more value from Digital Advisor when you update your investor profile, because you’ll have a financial plan that has been stress tested to handle market ups and downs. Plus, you get:

  • A personalized financial plan to help you reach your goals.

  • Ongoing investment management to help keep you on track.

  • Tools and resources to help you take charge of all your finances.

So invest some time in your financial future today. Update your Digital Advisor profile and be confident that your investment plan can weather stormy market conditions now and in the future.

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Vanguard Digital Advisor's services are provided solely by Vanguard Advisers, Inc. (VAI), a registered investment advisor. Please review the Vanguard Digital Advisor brochure for important details about this service. Vanguard Digital Advisor's financial planning tools provide projections and goal forecasts, which are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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