3 Tips to Weather Volatility
We have seen exceptional market volatility during the past few weeks as stocks have fallen quickly, risen quickly and then reversed course to fall once again. This type of market movement can be very unsettling, but as investors it is important to make sound decisions in the face of fast-moving markets. Here are 3 tips to weather market volatility and keep your investment strategy on track.
1. Don’t just trade based on what is happening today
There is a temptation to get caught in the news of the moment, or today’s movement in the market. If the market is dropping there is a temptation to want to sell, and when the market is rising quickly there is a temptation to buy. It is helpful to acknowledge that emotions can be a powerful and guard against making decisions solely based on them. Basing investment decisions based on emotions can often lead to bad decisions.
2. Keep today’s events in historical perspective
So how do we keep today’s market movements in perspective. It is helpful to remember our history. Consider the events that have shaken the markets before. How did those events unfold? What was the market’s reaction? What was the outcome?
When we remember our history, we realize that markets have faced formidable challenges before and have been able to recover. The markets have faced war, terrorism, financial crisis, recession, and even viral outbreaks before, just to name a few. When we look backward, we can see that market downturns happen frequently, but they don’t last forever. In fact, with the benefit of hindsight, we can see that the deepest moments of panic were often the very times to be buyers of stocks.
3. Remember your long-term plan
The best investment strategy starts with…well a strategy. Be careful about abandoning your long-term strategy too quickly based on events of today. If the strategy is well thought out, and based on good analysis, then it should be able to weather a crisis. In fact, a good strategy should start with a good defense, keeping some funds in conservative investments that will hold up and give stability when the crisis hits. Here at Cedarstone, when we run our long-term retirement plans, we test for market shocks and craft a portfolio that gives an appropriate amount of stability to meet our client’s goals. That gives us confidence that we are in the right place before the crisis hits and gives us the confidence to stick with it during those stressful moments.