As history shows us, ups and downs of the market are inevitable. However, in the moment, volatility is scary and may trigger a gut reaction to take action as soon as possible. But cooler heads prevail. It’s important to remember that volatility is a normal part of investing and is often short lived. When the market becomes volatile, it pays to have a customized investing plan and to stick to it.
- Keep things in perspective. Although market downturns can be nerve-wracking, they are a normal part of the market cycle – and usually short lived. Monitor historical volatility, which reflects actual past movements in stock prices. Since 1945, we’ve had 57 pullbacks and 21 corrections. For example, in 2003, the SARS virus pushed the S&P 500 to fall by 12.8%. When the Zika virus occurred in 2015, the markets fell by 13%. These volatile times in the market passed, the market recovered and hit new highs.
- Plan for many kinds of markets. Diversification can smooth the ride. In general, there won’t be a huge impact on a well-diversified portfolio given a long enough time horizon. Diversification can potentially enhance returns and insulate against effects of volatility. There are various ways to diversify. We can help you find the right overall investment mix for your situation.
- Remain Disciplined. Market turbulence may make you instinctively feel you should become more cautious in your financial plan or remove investments. However, removing yourself completely could mean missing out on the recovery. Short-term thinking based on fear can have significant long-term consequences. Historically, the market has tended to deliver more consistent, positive returns the longer the investment is held.
- Talk to your Financial Advisor. Whether the market is twisting and turning or remaining steady, we are here for you. During the inevitable market volatility, you can turn to us to help you stay focused and rein in your emotions and biases. We can help identify your risk tolerance and goals, develop an asset allocation strategy, ensure your portfolio remains diversified, and establish guidelines for rebalancing.
Fear is a normal reaction during volatile market times, but you can rely on us for advice on how to help manage the effects of the markets’ movements and how to position yourself to take advantage of opportunities that may arise. If you have questions or concerns about your portfolio, give your advisor a call, we’re here to help.
Please note: The S&P 500 index is comprised of approximately 500 widely held stocks that is generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. All investing involves risks, including the possible loss of principal amount invested. No investment strategy can guarantee your objectives will be met.
