January was a volatile month for global sharemarkets. We've seen a rebound since then, and markets seem to be on a more stable footing.
However, if that little bout of volatility scared you, maybe you're just not cut out for share investing. Maybe this is the "get out of jail free" card you've been waiting for, and it's time to quit while you're ahead and head for safer pastures.
But before you do that, think carefully about what you're trying to achieve, how you intend to get there, and make sure you also understand the risks of being too conservative.
US shares fell 5.3 per cent in January, the worst performance since March 2020. If it wasn't for a few strong days late in the month, those numbers would've looked worse.
At its weakest point, the S&P 500 was 9.8 per cent below its peak, narrowly avoiding the 10 per cent threshold that is generally considered a "correction".
The local NZX 50 was weaker still, falling 8.8 per cent in January. Apart from March 2020 (when the index fell 13.0 per cent) that was the worst monthly performance since February 2009.
That sounds dramatic, but for long-term investors January was just another day at the office.
Over the past 50 years or so, US and New Zealand shares have returned 10.7 and 10.0 per cent per annum, respectively. That means you're doubling your money, on average, every six or seven years.
It's also comfortably above the annual inflation rate over that same period, which has been 4.0 per cent in the US and 5.7 per cent here.
At its core, that's what investing is all about. We want to grow our wealth and protect our spending power from the ravages of inflation.
Shares, like businesses, real estate, farmland and other growth assets have historically been (and always will be) a great way of achieving that.
However, it's not a free lunch. You're going to face some volatility along the way, and those ups and downs can come quite frequently.
Since 1960, US shares have experienced no less than 31 corrections (or falls of more than 10 per cent).
Nine of those turned into full blown bear markets (declines of more than 20 per cent), mostly during recessions. The worst of these was from 2007 to 2009, when the S&P 500 tanked 57 per cent over 15 months.
Of the others, the average fall was 15.8 per cent and the average duration five months.
The crux of the matter is that sharemarket declines are normal. We've historically seen a correction every two years, and a bear market every seven or so.
If you've got the intestinal fortitude to hold your nerve and stay the course through these periods (or even better, buy more while others are panicking) you'll do absolutely fine as a long-term investor.
However, if January was your first taste of a rough patch and it caused a few sleepless nights, you've got some hard choices to make.
During the coming five years, you'll likely experience a few more sell-offs like that, and one of them might even be a proper recession-induced bear market.
On the other hand, if you do choose to get out now, don't be fooled. There's a price for safety too, and it comes in the form of much lower returns.
Cash is a haven in the short-term, but it's a terrible investment over any longer-term period, and it offers you little protection against inflation.
Sadly, you can't have your cake and eat it too.
Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.