Staying Invested in Volatile Markets: Strategies for Success

Stock market fluctuations happen every day. Market indexes and stock prices may move up one day and they might move down the next. Volatility like this is normal, but the more dramatic the swings, the greater the potential risk. As you manage your investments, it’s important to understand the nuances of market volatility so you can stay the course during turbulent times.

What is market volatility?

Market volatility measures how much and how quickly prices move over a period of time. The market can swing up or down, but the bigger and more frequent the change, the more volatile the market is. It is measured by the standard deviation of price changes over time. (In statistics, standard deviation allows you to see how much something differs from the standard value.)

Increased volatility on the stock market can cause fear and uncertainty among investors, but consider this: Although double-digit declines occur, stocks have historically recovered from major downturns and delivered long-term gains.

Ways to navigate market volatility

• Revisit your goals. A financial advisor can help you define and prioritize your goals to help guide your investment approach, regardless of market conditions. Focusing on your long-term goals instead of daily market fluctuations can help you avoid making emotional decisions about your portfolio. Plan to check on your portfolio annually and review your goals whenever you experience a major change in your life.
• Assess your risk tolerance. If you’re having a hard time coping with a market downturn, talk with your financial professional. More conservative investments might help your anxiety—and likely yield greater returns than cashing out.
• Stay diversified. Your portfolio should include investments across and within the major asset classes: equities (stocks), fixed income (bonds), cash equivalent or money market instruments, and alternative investments (real estate, commodities, futures and other financial derivatives). Remember all investments fluctuate in price: Basic consumer goods are typically a stronger investment during a recession, while industrial stocks tend to thrive in a booming economy. Meanwhile, lower-risk, fixed-income investments tend to provide steady returns.
• Look at the big picture. While past performance doesn’t guarantee future results, historically, investors who stay in the market have seen steady gains over time. Focus on your long-term goals and long-term market trends to lessen your anxiety about market fluctuations. And remember, when the market is down, your investments go further, allowing you to purchase more shares that may bring in returns during the next market upswing.
• Build your finances in other ways. Pay off your credit card debt, maintain your emergency fund, and focus on other financial goals, such as saving for something big, like a home or vacation.
• Watch for fraud. Beware of financial scammers promising “risk-free” returns. Only work with registered investment professionals. You can use BrokerCheck, a database managed by the Financial Industry Regulatory Authority (FINRA) or check the Securities Exchange Commission (SEC) website to research professional backgrounds of investment professionals, brokerage firms and investment advisor firms.

Working with a financial advisor

It’s tempting to react impulsively when markets fall sharply. But instead of selling off your stock or changing the allocation of your long-term investment portfolio, this is a good time to speak with an investment professional.

Patelco members have access to CFS Financial Advisors¹ who can help identify investment options that may help minimize volatility within your portfolio without cashing out on growth-oriented investments. Schedule your in-person or online consultation today!