Market volatility can feel scary. It can be hard to stomach the ups and downs in your portfolio, especially because they occur outside of your control. It’s important to remember that volatility is a normal part of investing. There are ways you can navigate these bumpy periods and, in some cases, find ways to seize potential opportunities.
What exactly is market volatility? Volatility refers to instances when market prices go up and down over relatively short time periods. This can be triggered by a variety of factors like economic news or political events.
Here are a few things to think about for your financial strategy during swings in the market:
1. Revisit your plan
Volatility can be an opportunity to revisit your investment strategy. Evaluate if your financial goals and tolerance for risk are still in line with your strategy and timeline, and make any necessary changes. For example, if you have not updated your long-term plan in the last decade and you are retiring in the next ten years, you can use markets in flux to lower your risk across your portfolio. Be aware of any potential tax consequences or fees and commissions you may incur by changing the assets in your account.
It may also be a good time to meet with a financial advisor, whether you are already working with one or considering it. They can help you gauge if you’re still on track towards your financial goals or should make adjustments given the volatility. Some people may be tempted to react to market swings. An advisor can help you keep your emotions at bay and stay focused on your long-term plan.
2. Consider potential opportunities to “buy the dip”
Depending on your risk tolerance and time horizon, market swings can create buying opportunities. If you are in your late 20s or early 30s and have extra cash savings on hand, you can try “buying the dip,” meaning buying a quality asset when the price goes down. Solid companies with a strong product and record of profits can get swept up in a market downturn, which could present an opportunity for some investors. You need to have a good understanding of the company’s fundamentals and what’s triggering a price drop before you consider this strategy.
3. Keep things in perspective
Historically, some of the market’s worst days have been followed by some of its best days. Over the past 20 years, seven of the best days happened within just about two weeks of the 10 worst days. This is why it’s not a good idea to try to time the market.
Data also shows that markets have a tendency to recover in the long run. Although short-term losses in your portfolio can be painful, it’s important to stay focused on your long-term strategy. Don’t let your emotions derail your plan.
4. Stay focused on your long-term goals
With investing, patience is often a virtue. Keep your long-term goals in mind amid volatility, whether that be retirement, your children’s future education costs or building generational wealth. Try to focus on the bigger picture, not the day-to-day swings.
It is important to remember that everyone’s financial situation is unique. Before adjusting your plan, consider speaking with a financial advisor to understand the implications of any changes and help decide what is right for you.
Kim Bonanni is a regional director at J.P. Morgan Wealth Management. Bonanni oversees financial advisors who help clients with holistic wealth planning and investment management.
