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.
What is Market Volatility?
Market volatility refers to the frequency and magnitude of price movements in a financial market. High volatility means prices fluctuate widely within a short period, while low volatility indicates more stable prices.
It can be influenced by various factors, including economic data, political events, and changes in investor sentiment. Volatility is often measured using statistical metrics like standard deviation or the VIX index, also known as the “fear index.” While it can create opportunities for profit, it also introduces risk and uncertainty for investors.
4 Tips to Navigate Market Volatility
- Keep things in perspective
Although market downturns can be nerve-wracking, they are a normal part of the investment market cycle – and usually short lived. Monitor historical market volatility trends, 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. Investment 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 planning 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 cycle tends 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. Work with a financial planner on your portfolio is always a great first step to ensure your investments can handle the ups and downs of the market.
Managing Market Volatility with Expert Guidance
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.
