Handling market volatility


Even if you view market volatility as a normal occurrence, it can be tough to handle when it’s your money at stake. Though there’s no foolproof way to handle the ups and downs of the stock market, the following common sense tips can help.

Don’t put all your eggs in one basket
Diversifying your investment portfolio is one of the key tools for trying to manage market volatility.* Since asset classes often perform differently under different market conditions, spreading your assets across a variety of investments such as stocks, bonds and cash alternatives has the potential to help reduce your overall risk.

Focus on the forest, not the trees
As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio.

When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The small returns that typically accompany low-risk investments may seem attractive when more risky investments are posting negative returns.

Before you jump into a different investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.

Look for the silver lining
A down market offers the opportunity to buy shares of stock at lower prices. One of the ways you can do this is by using dollar cost averaging. Dollar cost averaging means you don’t have to try to “time the market” by buying shares at the moment when the price is lowest. Instead, you invest a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of an investment, but when the price is lower, the same dollar amount will buy more shares.

Making dollar cost averaging work for you

  • Get started as soon as possible — the longer you have to ride out the ups and downs of the market, the more opportunity you have to build a sizeable investment account over time.
  • Stick with it — dollar cost averaging is a long-term investment strategy. Make sure that you have the financial resources and the discipline to invest continuously through all types of markets, regardless of price fluctuations.
  • Take advantage of automatic deductions — having your investment contributions deducted and invested automatically makes the process easy and convenient.

Don’t stick your head in the sand
Check on your portfolio at least once a year, more often if the market is particularly volatile, or there have been significant changes in your life.

Don’t count your chickens before they hatch
Becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it and strike a comfortable balance between risk and return.

*Diversification and asset allocation strategies do not assure profit or protect against loss.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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