Economic optimism or pessimism, global health risks and trade wars are just some of the many factors that can introduce volatility in your portfolio. The real question is, what’s the best way to endure these twists and turns?
To thrive as an investor, it’s important to keep your emotions in check. But let’s face it, staying disciplined can be easier said than done, especially as global markets react to the global outbreak of the COVID-19 virus. Here are some effective ways that can help you manage how you feel about your investments during times of market volatility.
1. Tune out the noise
Don’t get caught up in the news of the day. The news about a global health crisis is making many investors jittery about the Chinese economy and the impact it is having on the broader global economy, especially if it results in prolonged disruptions to supply chains and lower consumer confidence. However, history shows that the effects of global distress after similar global health challenges, like SARS and the Avian Flu, are often short-lived and exist only on paper – unless you allow your emotions to influence your investment decisions.
No one has a crystal ball to know when the market is going to move up or down, so remind yourself that while salacious headlines may grab your attention, they don’t offer sound investment guidance and shouldn’t be the reason for making sudden changes to your portfolio.
2. Be diversified
Adhering to a diversified investment plan can help lower volatility in your portfolio and minimize the impact of market declines. Different types of investments, such as stocks and bonds, and even various geographic markets, can perform in opposite ways; when one is up, another can be down.
Once you determine a target asset allocation that makes sense for you, ensure you periodically rebalance your portfolio to maintain that mix and stay aligned to your risk tolerance and overall circumstances.
3. Think long-term
Short-term losses can be unnerving, but markets generally reward the patient investor. Markets tend to recover over time and can keep growing to set new highs. Remaining invested, particularly through the current volatility, is one of the best ways to ensure you reach your long-term goals. As such, day-to-day fluctuations in your portfolio become much less relevant when your investment horizon is years, if not decades, long.
4. Have a coach
Volatility in domestic and global markets can be hard to reckon with, especially when you have to deal with it alone. Financial Advisors help allay their clients’ fears amid the negative news flow and provide a “reality check” when volatility spikes. They also help their clients develop a financial plan they can trust, giving them confidence that they can look past the short-term blips that stem from global apprehension. Partnering with an Advisor includes being equipped with a financial plan that reflects your situation and outlines how you’ll reach your goals.
5. See the glass as half full
As much as investors may dread short-term volatility, it can provide opportunities for those who want to buy assets when they’re underpriced. In other words, you can even capitalize on the ups and downs of the market.
A pre-authorized contribution plan can allow you to manage, and take advantage of, short-term volatility through dollar-cost averaging – investing a fixed amount at regular intervals to help smooth out the rises and falls of changing prices. It’s also a way to put your savings on autopilot so that you don’t have to remember to do it.
Your Advisor can help
While short-term market volatility may not be enough to change how you invest, recent events in your life – planned or unexpected – can be. After any key life events, such as a marriage, income change or inheritance, it’s a good time to re-evaluate your investment objectives.
Speak to an Advisor today to review your investment plan, discuss any questions or concerns you may have, and see if you’re on course to your financial goals regardless of what’s going on in the market.