Market volatility can be unsettling, especially when you see your investments fluctuating day by day. However, staying calm and sticking to a well-thought-out strategy can help you navigate these turbulent times effectively. Here are seven key steps to consider when dealing with market volatility:
Don’t Forget History
Market downturns are a natural part of the economic cycle. Throughout history, markets have experienced significant declines, but they have also shown a remarkable ability to recover over time. Even the most severe bear markets have been followed by periods of growth. By keeping this long-term perspective in mind, you can avoid the temptation to make impulsive decisions based on short-term market movements.
Stick to Your Long-Term Plan
Investing is a long-term endeavor, and your portfolio was likely designed with periods of volatility in mind. Focus on your long-term goals and remember that market fluctuations are a normal part of the investment journey. Avoid letting fear or greed derail your carefully crafted strategy.
Maintain a Diversified Portfolio
Diversification is crucial in managing risk. A well-diversified portfolio, including a mix of stocks, bonds, and cash, can help mitigate the impact of market volatility. By spreading your investments across different asset classes and sectors, you reduce the risk of any single investment adversely affecting your overall portfolio. Diversification acts as a buffer, helping to stabilize returns during unpredictable times.
Rebalance When Necessary
Market swings can cause your portfolio’s asset allocation to drift from your original plan. Regularly reviewing and rebalancing your portfolio ensures that it stays aligned with your risk tolerance and investment goals. This process involves selling assets that have grown beyond their target allocation and buying those that have decreased, helping you maintain your desired level of risk.
Example:
If equities have surged and now account for 70% of your portfolio instead of the intended 60%, rebalancing allows you to sell some stocks and reinvest in bonds or cash, restoring balance.
Keep an Emergency Fund
Having an emergency fund equivalent to three to six months of living expenses is essential. This cash reserve allows you to meet unexpected needs without having to liquidate investments during a market downturn. For those nearing retirement, a larger safety net, such as two years’ worth of expenses in non-market-correlated assets, can provide additional peace of mind. This ensures you won’t need to sell investments at a loss to cover immediate needs.
View Volatility as an Opportunity
Market downturns can present opportunities to buy quality investments at lower prices. If you’re in a position to do so, consider adding to your portfolio during these periods of volatility, taking advantage of the potential for long-term growth. Systematic investment strategies, like dollar-cost averaging, can also help you benefit from lower prices during market dips.
Example:
During a downturn, high-quality companies may see their stock prices decline due to overall market sentiment rather than fundamentals. Investing in such companies can yield significant returns when the market recovers.
Consult with a Financial Professional
If you’re feeling uncertain about your investments, it’s always a good idea to consult with a financial professional. They can provide guidance tailored to your specific situation, helping you navigate volatility with confidence and ensuring that your investment strategy remains aligned with your goals. A wealth advisor can also help you:
- Evaluate your risk tolerance.
- Adjust your portfolio in response to changing market conditions.
- Identify opportunities for tax-loss harvesting during downturns.
Stay the Course and Stay Informed
Market volatility is an inherent part of investing, but by staying disciplined and focused on your long-term objectives, you can turn these challenging periods into opportunities for growth. Remember that emotional decisions often lead to unfavorable outcomes. Trust the strategy you’ve built and the guidance of a financial professional to help you weather the storm.
Ready to Navigate Market Volatility with Confidence?
Schedule a discovery call with one of our wealth advisors today. Together, we’ll review your financial goals, risk tolerance, and investment strategy to craft a personalized plan for long-term success. Don’t let market fluctuations derail your progress—let us help you stay on track.
Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Any opinions are those of Voyager Wealth Advisors and not necessarily those of Raymond James. This information is not intended as a solicitation or an offer to buy or sell security referred to herein. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Tax-loss harvesting involves certain risks, including among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your account. There may also be unintended tax implications. Prospective investors should consult with their tax or legal advisor prior to engaging in any tax-loss harvesting strategy.
