For many investors, the mere mention of “volatility” can tie their stomach in knots. While wild market swings can be unnerving – even for experienced investors – they shouldn’t derail your long-term investment goals. Here are four tips to help you keep your perspective when markets get choppy.
1. Ignore the market noise
If daily swings in the market are causing you to reach for the antacids, try doing something truly novel: ignore them. While perhaps easier said than done, ignoring the market noise will do wonders for your peace of mind and prevent you from making a hasty decision you’ll likely regret.
The recent unsettled feeling that’s gripped the markets over the last few months isn’t always based on economic fundamentals. While markets have been understandably sensitive to the ongoing trade dispute between the U.S. and China, they often overreact to short-term noise. In early October, markets surged over optimism for a phase-one trade deal hailed by President Donald Trump. Days later, those hopes waned as it appeared that little substantive progress had been made.
It’s important to remember that, as individual investors, we have no control over volatility. What we can control is our own mindset; the more level-headed we remain, the better our investment results will be over the long haul. Don’t be swayed by the short-term noise.
2. Stay focused on the long term
Assuming you’ve got a long- term investment horizon of at least five years, the current volatility will pass. Market pullbacks, corrections and even bear markets are a normal part of the stock market cycle.
Consider this: since 1945, the S&P 500 Index has declined between 5% to 10% on 78 different occasions. The average recovery time to previous highs was roughly one month.1
A few years from now, market setbacks like the one we’ve experienced recently will most likely be tiny blips on a longer-term chart. While it’s sometimes easy to fall prey to the daily market drama, the most successful investors have a long-term strategy from which they rarely deviate. Investing in quality companies with a proven track record of earnings and growth can help mitigate some volatility and keep you focused on your long-term investment goals.
3. Avoid panicked selling
Overall, 2019 has been a mixed year for many investors. While North American markets have largely recovered from the downturn in late 2018, many investors remain concerned about slowing global growth. All the recent headlines might make you want to cash out your investments and wait it out on the sidelines.
That’s an understandable feeling. However, it’s not a good idea. Leaving the markets in the midst of volatility is usually motivated by fear, which is responsible for some of our biggest investment mistakes. Anyone who sold during the 2008-09 market meltdown locked in steep losses and most likely missed a powerful rebound.
4. Seek out financial advice
Staying invested during wild market swings isn’t always easy. However, market volatility can be beneficial if it forces you to revisit your portfolio with an eye toward improving diversification or re-assessing your tolerance for risk.
Research on the value of advice has shown that investors who work with a financial advisor not only save at a higher rate than non-advised investors, but they also have a greater feeling of confidence about their financial future than those who don’t work with an advisor.
Investors who worked with a financial advisor for more than 15 years accumulated 3.9X more assets compared to those who didn't.2
Taking the time to develop a financial plan to help you reach your investment goals can go a long way to keeping you on track and remind you why you’re investing in the first place – whether it’s for retirement, your child’s education or some other goal important to you.