Strategies for Volatile Markets
It’s important to stay calm when the markets aren’t.
Market volatility, especially dramatic sell-offs, are unsettling to most of us. Here are a few reassuring facts to help you keep a positive perspective and some precautions that may reduce your risks.
Things to remember: Historically, stocks have gone down faster than they have gone up, but they also went up more frequently than they went down. Over the last 100 years, the stock market was up 60 to 65 years and down around 35 years. On average, the market declined one year in three. Over the past century, stocks averaged a 9 to 10 percent annualized gain, while bonds returned 6 to 7 percent, and interest-bearing bank accounts earned 1 – 3 percent.*
Things to do: To ride out the storm well, focus more on your goals than the current news. Try not to react emotionally; investors trying to time the market by jumping in and out of it run the risk of selling low and missing periods of exceptional returns. While past performance is not a guarantee of future results, most financial experts recommend adopting a long-term strategy when investing in the stock market.
Turbulent times are a good reminder, however, to review your plan regularly. Consider how well it fits your investment time frame, your need for growth and the level of risk you’re willing to take. Is your portfolio diversified adequately? Spreading investments over a variety of classes, assets and markets won’t guarantee you won’t incur losses, but it should limit them. You may want to make plans now to rebalance some of your holdings when the time is right, or you might view a downturn as an opportune time to purchase some investments at reduced levels.
If you’re still working, don’t let temporary setbacks discourage you from making regular contributions to your retirement plan. Continue to invest a fixed amount of money at regular periods over the years, and you’ll buy more shares of each asset when prices are low and fewer when they are high. Using this technique, your average purchase price should be lower than the average market price over the same period.
Finally, be patient. Although it may take some time, markets generally do rebound. In the meantime, please feel free to call our office and set up a time to review your portfolio to ensure it suits your long-term goals and includes a plan for future market volatility.
*stats from Motley Fool Podcast, “Coping With Market Volatility,” posted August 26, 2015
Written by Securities America