It can be unsettling for investors when their portfolios and the markets start heading into the red. Here are six investing basics to keep in mind during volatile times.
1. Periods of volatility are normal.
All markets move in cycles, and periods of steep contraction are completely normal. While the length of market contractions varies, periods of growth and expansion are usually waiting on the other side. The markets have proven remarkably resilient over the long term, and while returns can be quite volatile year-to-year, they’re generally positive over multi-year periods.
2. Don’t panic.
Letting emotions dictate your investing strategy is a risk you shouldn’t take. Short-term decisions can have long-term consequences on your portfolio. Being patient can pay dividends.
3. Know your portfolio.
Understand your investments and how specific assets represent different goals and outcomes. Keep in mind your risk tolerance and investment timeline, and if either has changed, consider talking to your financial advisor about rebalancing your portfolio. Diversification can potentially help balance risk during a downturn and mitigate extreme swings in value.
4. Stay the course.
Remember your financial plan and long-term goals and stick to them. A disciplined investment approach is a sound strategy for handling market downturns and will likely enable you to participate when the markets rebound.
5. Consider opportunities.
Working with your financial advisor, determine whether periods of volatility are a good time to take advantage of investment opportunities in line with your long-term plan.
6. You’re not alone.
Your financial advisor is available to answer your questions and provide help when you need it. He or she can guide you through difficult markets and be the independent voice that helps you stay focused on your long-term goals.