It’s no secret that the markets were volatile last year, especially in the fourth quarter.
This occurred for a variety of reasons but probably two that garnered the most attention involved whether the Fed was going to keep raising interest rates and what the end-result will be regarding the ongoing tariff negotiations with China.
The markets don’t like uncertainty and anytime that exists it is common to see volatility.
It doesn’t help anything that we now live in a 24-hour news cycle where the media needs to report constantly on “something” and unfortunately, they tend to focus on anything negative and seem to ignore the positive.
2017 was an abnormal year in the markets where there was very low volatility and everyone got used to it. By historical standards, 2018 could actually be considered a normal year when it comes to volatility.
But even if you realize market volatility is a normal occurrence, it can sometimes be tough to handle as you open your statements when it's your money at stake.
Though there's no foolproof way to handle the ups and downs of the markets, there are some common-sense tips to follow.
Diversification Is Highly Important
You’ve probably heard it time and time again but it’s true that diversifying your investment portfolio is one of the key ways to address market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of different investments can help manage your overall risk.
Everyone’s situation is unique and your allocation should be tailored to your personal investment objectives, risk tolerance level, and investment time horizon.
Keep a Long-Term Perspective
As the markets go up and down, it's often easy for folks to become too focused on short-term returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio.
Don’t Make Hasty Decisions
When the market goes down, you may be tempted to pull out altogether and look for less volatile investments. But before making significant changes to a different investment strategy, make sure you're doing it for the right reasons.
How you choose to invest your money should be consistent with your long-term goals and not short-term emotions. Over the years, we’ve had a small handful of clients repeatedly make knee-jerk reactions to movements in the markets that are not consistent with their stated goals; and invariably they usually regret it.
Look for Opportunities
The markets, obviously, go up and down, but when they go down it can present opportunities. When these situations occur, if you are sitting on some cash that you have been considering investing; it provides the opportunity to buy at lower prices.
The right approach during all kinds of markets is to be realistic.
While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. Check up on your portfolio at least once a year or when there has been a significant change in your life.
You may need to rebalance to bring it back in line or redesign so that it better suits your current needs. Don't hesitate to get expert help if you need it when deciding which investment options are right for you.
Have a plan, stick with it, and strike a comfortable balance between risk and return.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.