Watch or scroll through the news, and you’re sure to come across a bevy of stories that may cause you to reconsider your investment strategy. Soaring inflation. Interest rate hikes. Geopolitical unrest. The list goes on. Market volatility can be unnerving for even the most seasoned investors, yet markets are exactly that—volatile.
Declines are unavoidable in the world of investing. What truly matters, though, is how you react to them. One of the most important pieces of advice to keep in mind as you navigate a downturn is to avoid getting raddled and instead, stay on course (if your timeline allows for it). Here are four tips to help you do that.
Investing is a marathon, not a sprint—meaning that you should have a 5-year horizon (or ideally, longer). The key thing to remember is that when it comes to investing, it’s not about timing—in other words, when you get into the market. It’s about time, or how long you stay in it. So, instead of thinking of your investments as assets that build wealth over a quarter, look at it through the lens of several years and beyond.
After all, history has shown us that markets invariably bounce back. Those who pull their investments during a decline can risk missing massive upswings if they re-enter a rebounding market late.
Call-out tip: The biggest upside to staying in the market during an uncertain time? The possibility of substantial gains immediately following a downturn.
Dollar-cost averaging is a tried-and-true strategy for reducing the risk of market fluctuations. Essentially, it recommends setting a fixed dollar amount that’s invested on a regular basis, regardless of the condition of the market. For example, if you decided to invest $5,000, you could do so over five intervals by investing $1,000 on a predetermined day every month.
When using this strategy, investors typically end up buying more shares when prices are low and fewer when they are high. It also replaces an emotional investing approach with a more methodical one, helping investors to stay on course and avoid costly mistakes.
Different types of investments have varying degrees of risk and reward. For instance, stocks carry tremendous promise with their potential to deliver higher returns over the long term. Yet, they also come with increased risk as they are more likely to rise and fall significantly. Bonds, on the other hand, are less volatile—but they have traditionally delivered lower returns.
For these reasons, it’s wise to re-evaluate your risk tolerance with your financial advisor before making any drastic decisions. If you’re close to retirement, you may decide that a more conservative approach to your investments is best. And remember: diversification is key. A balanced portfolio that’s spread across a mix of investment types (including stocks and bonds), as well as industries and geographies, can help reduce risk during market ups and downs.
As a savvy investor, you’ve likely experienced first-hand the emotional rollercoaster than the stock market can be.
Still, your best bet during market swings is to avoid getting thrown off-balance. While you may be triggered to react, this can exacerbate the situation by panic selling at a market low—or worse, missing out on major gains.
Stock market volatility is normal. If you’re investing for a longer-term goal, have maintained a balanced portfolio and have re-assessed your risk tolerance, the best strategy during a downturn is to stay the course and remain focused on the big picture.
Having a wealth advisor on your side is vital if you want to protect and grow your assets. A trusted advisor, who is accredited and proven, will walk you through a strategy that suits how much you want to invest and the kinds of returns you can expect to see.
Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Financial planning services are available only from advisors who hold financial planning accreditation from applicable regulatory authorities.