Market Volatility: Investing in Uncertain Times
With everything happening in the world right now, it’s understandable to feel unsettled. The combination of uncertainty—whether economic, political, or global—can create a genuine sense of anxiety, stress, and even frustration. You may be wondering what all this means for your family, your future, and the financial foundation you’ve worked so hard to build. It’s natural to have concerns, and it's normal to feel this way.
However, with a strong long-term financial plan in place, it is crucial for your financial success not to alter your investment approach based on short-term emotions.
Here are some reliable strategies for navigating the fluctuations of market volatility.
1. Build a Well Diversified Long-Term Portfolio
A properly diversified long-term investment portfolio helps to make sure that temporary losses won’t derail your overall financial health. With a solid foundation, your investments can recover and generate profits in the future.
Diversification is the key to mitigating risk during market volatility. By blending growth-oriented stocks with more stable bonds and cash, investors can reduce the impact of short-term fluctuations.
With investing, staying committed to your plan is far more important than reacting to temporary market swings. A disciplined investor is far more likely to withstand periods of volatility by focusing on the bigger picture and long-term goals. The following chart by Clearnomics illustrates the impact of staying invested in turbulent times.
2. Look for Opportunities
It is not common to relish a market downturn. However, market volatility can present some unexpected opportunities for stability and even profit. Professional investors use market pullbacks to find fundamentally sound companies at a lower cost. In fact, if you have money in stock mutual funds, the managers are probably already making those investments for you.
This isn't about trying to time the market to avoid a potential crash. Instead, it's about staying with your well-planned and diversified investment portfolio mix. This strategy enables you to benefit the most as the markets recover.
While nobody knows exactly when a recovery will occur, history has informed us of what typically happens when it does.
As of the latest data, the S&P 500 has entered correction territory, experiencing a decline of approximately 10.1% from its recent all-time high. The average downturn in a positive year has been 11% over nine weeks. Roughly every 365 days, the stock market undergoes a 10% drawdown. This means that despite the tumult, this volatility is nothing unusual. In fact, it’s normal and even healthy!
3. Maintain Proper Cash Reserves
Every long-term investor should maintain proper cash reserves. It’s normal for us to recommend a cash reserve of at least two years of living expenses for individuals nearing or in retirement. It provides a comfortable buffer and can assist you with short-term disruptions while your portfolio stays oriented toward long-term goals.
4. Stay Disciplined
Markets fluctuate, and the overall marketplace remains resilient, overcoming occasional downturns and consistently getting back on track.
Some of the worst days in the market are followed by some of the best. Investors who do not panic or dodge in and out stand to gain the most from those recoveries. Patience and discipline may be tricky to maintain in turbulent times, but history has shown it rewards.
If you want to discuss your financial goals or concerns, we’re here to assist you. Whether you prefer a brief phone call or an in-person review meeting, we welcome the opportunity to help.
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