How to Keep Control During Market Volatility
One bitter truth about investing is that markets don’t always go up.
Volatile markets are usually characterized by sharp and unpredictable price fluctuations together with heavy trading. These movements can occur over a period of days, weeks, or months.
An extended period of market volatility can unsettle and prompt you to question your investment strategies.
While common, these times can be anxiety-producing for investors. Some investors bow out of the market entirely and stay on the sidelines till it seems sensible to jump back in.
“It’s no secret that market volatility can be unnerving, but it’s times like these when it’s vital to keep a keen eye on your investment portfolio and its long-term interests,” says Gary Isler, Senior Vice President, Investments for David Lerner Associates. “The best strategy is a sensible middle-ground of investing.”
Throughout the markets’ ups and downs, here are a few key points to keep in mind when investing for the long term:
- Do NOT Time the Market or Panic Sell
Predicting market movements is difficult, even for the world’s best traders and portfolio managers.
By attempting to time the market, you risk turning what may be a temporary market decline into a permanent loss. For instance, if you decide to sell your investments before a market downturn and then miss a subsequent market recovery, you may lose out on potential gains.
Also, constantly buying and selling investments in time the market can cause higher transaction costs which can eat into your returns.
Finally, market timing can be emotionally draining as you may become overly apprehensive about market movements.
- Remember the Long Term
It’s likely that some of your investments have a long time horizon. If that’s the case, understand that whatever you see on the news may not be happening in your account.
History teaches us that for every unique economic challenge we’ve encountered, we were able to adapt to the changes and come out stronger.
With that being said, it’s essential to keep a long-term perspective when investing and not get too caught up in short-term market fluctuations.
Despite facing decade after decade of recessions, wars, natural disasters, and virus outbreaks, the stock market has historically been a good investment for the long term. Maintaining a long-term focus can help you avoid making impulsive decisions based on short-term market movements.
To avoid being overly influenced by emotion, automate your investment strategy. Doing this will help you focus on your long-term strategy.
- Stay Diversified
Reduce exposure to uncontrollable risk by making sure you don’t put all your eggs in one basket.
Diversifying your investment portfolio across different asset classes, such as stocks, bonds, and real estate, can help minimize the overall risk of your portfolio and reduce the impact of market volatility. You also should diversify your stock and bond holdings to reduce overexposure to any one type of investment.
After diversifying your portfolio, remember to rebalance it as needed. Market volatility can skew your allocation from its initial target.
- Seek Professional Advice
If you’re concerned about your investment portfolio’s performance, speak with your advisor about the best course of action.
Consulting with a financial advisor can help you develop a comprehensive investment plan that considers your specific financial goals, risk tolerance, and investment time horizon.
An advisor can also help you stay disciplined and focused in the long term, even during times of market volatility. They’re equipped with the knowledge to help you traverse these situations and can guide you on what to expect.
Conclusion
Market volatility is inescapable – it’s typical for markets to fluctuate over the short term. Allowing your emotions to drive investment decisions may prove costly.
By following the above strategies, you can help control market volatility and maintain a long-term perspective, positioning yourself for fruitful investing over the years to come.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.
This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.
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