Navigating the impossible-to-predict stock market relies on confidence and a degree of farsightedness. After nearly a decade of steady growth, 2018 saw the market start to correct itself as 10-year lows were reached leaving investors with an undeniable sense of unease. When it comes to investing in the markets, you need to employ a strategy best suited to your long-term goals. Investing in a volatile market, however, brings its own set of challenges and therefore requires a specific strategy for investments.
What is a Volatile Market?
Volatility refers to how much an asset’s value increases or decreases and is closely related to risk wherein larger changes equal greater risk. Greater volatility or a volatile market is where the price of an asset can fluctuate dramatically over a shorter period. Lower volatility on the other hand sees security values maintained more steadily.
For those used to the bull market we’ve witnessed throughout this past decade, investing in a volatile market like the one we’re experiencing now can be challenging.
Employing the following strategies may keep your investments and mentality afloat during a period of extreme changes in the market:
1. Keep Perspective
Understandably, a few days, weeks or even months of investment losses can be disconcerting or panic-inducing. History shows, however, that the stock market is capable of recovery and can still provide its investors with long-term gains. There are always going to be ups and downs with the market, but history tells us these periods are often short-lived and that the market is consistently improving. Remember this when the temptation to make any extreme changes to your investment strategies hits.
2. Stay Confident and Disciplined
Your goals, risk tolerance and time horizon are all factors that play into our overall investment strategy. While increasing market volatility will likely have an impact on your investments to some extent, it is no reason to completely jump ship and abandon your previous strategy. Decisions to alter your investment strategy should be based on research and fundamental analysis, not emotions. If your current strategy is too uncomfortable for you during a time of greater volatility, it may be time to shift your approach, even if taking on less risk potentially means less gains.
3. Invest Regularly
Short-term downturns may have a smaller impact on your long-term performance if you invest regularly even in volatile markets. Trying to time your investments by moving in and out of the market can be costly. Consistently timing the purchase and sale of your investments exactly right is impossible. Missing even a few of the best days can have a lingering effect on your portfolio.
Your first line of defense when it comes to investing is always diversification. Rather than taking a ‘place all of your eggs in one basket’ approach, spreading your investments across multiple companies and industries may protect your overall portfolio from downturns specific to that company or industry. A few ways you could take a diversified approach are by investing in markets outside of the United States and purchasing different types of stocks, bonds and short-term investments.
5. Long-Term Approach
While it is important to keep an eye on your portfolio to have a sense of how it is performing, checking it daily is unnecessary. Unless you are a day trader, the daily ups and downs of the market have no meaning to you whereas the ups and downs of the market over a great period, do matter. Especially for those who have a greater investment horizon, you may have time to counteract any short-term losses. Ultimately your investments aim to do just that, perform well in the long-term.
The biggest takeaway is not to panic in a volatile market. Remember that your investment goals are setup for the long-term and making changes to those strategies based on emotion have proven to be costly. Our financial consultants are available to help you determine a comprehensive strategy and risk you are willing to take on in the marketplace, volatile or otherwise.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Dollar cost averaging and/or diversification does not protect against market risk.