Even so, market volatility is inherent in investing and trading, and its unpredictable movement is often at the root of investor confusion and panic – and ultimately of holding back investors from achieving their financial goals.
Historically, investors who stayed invested during market downturns have been handsomely rewarded for their patience, and many market-ready plans have provided real comfort during periods of volatility. In addition, here are some suggestions that can offer some assistance in reaching your long-term goals despite market gyrations.
Stay focused on your long-term goals
As the market zigs and zags, investors get stomachaches and wonder aloud whether they should change some of their long-term investing strategies, when the evidence suggests sticking with those strategies can be the best way to make money.
It’s inevitable that you will have some short-term market gyrations, and it’s helpful to remember that an investment’s price on any given day reflects an underlying fundamental value. It should return when markets correct.
But financial plans, re-evaluated risk-tolerance assessments and portfolio diversification can all be part of helping you keep on your feet when the market starts to rock. Your Ameriprise financial advisor can help to put some proven strategies in place so that you don’t stumble.
Don’t overreact to short-term news
Market volatility can be frightening, but it’s a normal part of investing. Make sure your investment projections take that into account, and then talk to a financial advisor of your choice about your goals, time horizon and risk tolerance before taking drastic action yourself.
These factors will lead you to determine if your current asset allocation makes sense for you; and if it doesn’t, a financial professional might be able to suggest some alternatives.
Or that market volatility can differ in magnitude across industries or individual companies? For example, fluctuating oil prices can drive up the price of related oil distribution stocks; increased regulatory costs in one industry can reduce its stock prices.
Keep your emotions in check
When markets fall, it’s easy to get turned about and fearful, but volatility is part and parcel of investing – and can create opportunities for those who don’t run at the first sign of danger.
Don’t let market gyrations and media headlines sway your decisions, especially in times of trouble. Try to maintain a long-term outlook, ideally with a healthy dose of detachment; this could involve turning off the cable news, meditating or taking less social media doomsurfing; but really, anything to help you channel energy for the greater good will come in handy when the seas are rough. And a review of your financial plan and risk tolerance with an adviser might even help when winds of uncertainty blow.
Stay disciplined
While sometimes it might seem tempting to abandon a sound plan in favor of a ‘hot new idea’, maintaining your equanimity is key to long-term investment success. By following a good plan that is diversified by investment type, geography or investment adviser, by keeping your expenses under control and by maintaining a positive, hopeful perspective, you can mitigate perilous market forces.
This is something to keep in mind the next time your read about big market declines – that it is indeed normal because it is part of the process of being a good investor. A market decline, with its decreases in the values of many investments, may provide investors with more opportunities to purchase good values on the cheap. Staying focused on your long-term goals and working with your advisor to make sure you are staying on track with your plan are ways to help navigate the volatility that is natural in markets.
Be patient
As market volatility plays out in the headlines, and the fear of losing money overcomes common sense, it’s critical for investors who are saving for retirement, or a home, or both, to ride out the storm staying the course, remaining level-headed, and letting compounding work its magic.
Always seek advice from a financial adviser before making any drastic changes to your portfolio or investment strategy during market turbulence. If you’re not already working with a financial adviser, or haven’t done so recently, this occasion is a good one to get back in touch. Your adviser can revisit your investing time horizon, risk tolerance, financial situation and goals before coming up with an appropriate investment portfolio for you. The adviser might also help you develop rebalancing and diversification strategies that can help to minimise short-term price swings; research shows that do-it-yourself investors who try to ‘time’ the market are likelier to lose money than to make it.
Educate yourself
Fluctuations in the market are bound to happen; and one needs to learn to invest in a smart way to cope with volatility. For new investors with these demat accounts, preparation, prior education, discipline and a strategic thinking to know about volatility in advance can help you deal with it. Diversifying the portfolio, using the dollar-cost averaging approach, consulting financial professional about while and what to invest, and what is your goal and timeframe can help.
Smart investors may take advantage of consistently volatile markets because such markets present potential inefficiencies in pricing. These inefficiencies may be due to human irrational emotions influencing stock price. Also, due to economic releases or company news release and trader reactions to such events, make markets volatile.
