A new year is upon us. This opens the door for new opportunities and possibilities, which can also lead to uncertainty. This uncertainty can also be present in the stock market as volatility. We witnessed the presence of volatility more this year than we did in 2017. However, this increased volatility resulted in the market returning to an equilibrium after the boom that 2017 brought to stock prices. This year the market has also witnessed several interest rate hikes by the Federal Reserve and had to deal with a trade war. Understanding that the market follows a cyclical pattern of increases and decreases can help ease an investor’s mind during this time of volatility. Remember that there is no reward without risks and that certainly goes for the stock market. The main key for investors is to stay calm and patient during these times. There are several tips that may help the average investor weather the storm of a volatile stock market.
One thing to help in a declining market is to have a diversified portfolio. This is an easy, yet strategic way to protect yourself from potential volatility. Depending on age, goals, and risk tolerance, some investment vehicles may be less volatile than others. There are a variety of investment options that can be implemented in order to match the market exposure the investor desires. It is generally a good idea to decrease risk as age increases. It may seem like a lot of information considering the various investment vehicles available, you’re in luck, our financial advisors have the expertise needed to place your assets in investments that match with your desired return according to your personal financial plan.
Another way to protect your portfolio during market downturns is to avoid making irrational decisions out of fear or uncertainty. Fear can cause people to make poor investment decisions. Stock market downturns have historically provided investors with great buying opportunities. While some investors may want to sell everything, this creates the possibility on missing out on some significant gains. It may be easy to get out of the market but much harder knowing when to get back in. A lot of investors who got out of the market in 2008 and 2009 did not get back in for several years missing out on some of the best years in the stock market. Keeping a calm and optimistic outlook can be very helpful. An article released by Fidelity Investments states “Market downturns may be upsetting, but history shows that the US stock market has been able to recover from declines and can still provide investors with positive long-term returns. In fact, during the past 35 years, the market has experienced an average drop of 14% from high to low during each calendar year, but still had a positive annual return in more than 80% of the calendar years in this period.”
Having a proper plan in place can help investors during times of both market growth and decline. Talk with your financial advisor about your concerns and goals and put a plan in place to help keep you on track to achieving your financial goals.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.