Periods of increased market volatility, when stock prices sharply rise or fall within a relatively short period of time, can understandably make some investors uncertain or nervous.  Whether you are currently invested, or are considering doing so, you may be wondering what the best strategy is during a cycle of unsettling market activity.

 

Don’t Overreact

 

It is somewhat of a cliché to say that two emotions, fear and greed, are notably some of the driving forces of market activity.  During a bull market, as share prices rise, some investors develop a false sense of confidence regarding future price levels.  In their zeal, they may project a continuous long-term trend.  Conversely, and often more costly, lies the disappointment that may set in whenever market values decline significantly.  During these bear markets, some people overreact and may envision a long-term loss of their nest egg.  The reaction is often to sell…low.  A strategy known as dollar cost averaging may help mitigate the market spikes we endure.

 

It is important, however, for individual investors to view market fluctuations in its proper perspective.  Volatility in the stock market, even movements lasting months or years, generally should not disrupt your long-term investment strategy.  Why?  It’s simple:  Historically, by maintaining your long-term objectives, short-term spikes may be overcome and enhance total return.  While it is not a simple task, but staying objective and disconnecting emotions from your investments will help you make prudent decisions.  If the rollercoaster ride makes you anxious and/or affects your current lifestyle, you may not be invested most appropriately.

 

Focus on Long-Term Objectives

 

Practicing an objective mindset, one that avoids bullish euphoria and bearish despair, can help investors keep their long-term goals on target.  Keeping focused also helps to diminish the temptation of attempting to time the market.  Investment professionals, Wall Street gooroos nor computers can effectively predict short-term market movements.

 

Adopting a long-term investment philosophy also helps guard against some of the media articles we are inundated with.  There is often so much more relevant and straightforward information that the headlines sometimes leave obscure.  Whether such news is deemed good or bad, do your own research or consult with a Financial Advisor to evaluate any potential impact to your plan.  I would be delighted for that opportunity to speak with you.

 

Review your Portfolio and Strategy Periodically

 

Evaluating your financial portfolio at least annually is yet another way to help you cope with market volatility.  As you assess your progress, consider your time horizon, other financial resources and tolerance for risk.  A solid plan should have flexibility for contingencies as well. 

 

At least for the foreseeable future, periods of market shifts are probably the “New Normal.”

 

However, adhering to a long-term financial plan can help you weather the storm.


John Zacira
Financial Advisor
RMD Financial Group
Sarasota, FL (941) 929-9726
jzacira@investorscapital.com