5 things you need to know to ride out a volatile stock market

These tips can also apply to the real estate market

 

1) Watching from the sidelines may cost you

            When markets become volatile, many people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. But just as investors may be slow to recognize a retreating stock market, they may also fail to see an upward trend in the market until after they have missed opportunities for gain. Missing out on these opportunities can take a big bite out of your returns.  

 

2) Dollar-Cost Averaging makes it easier to cope with volatility

            Most people are quick to agree that volatile markets present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult. You can’t help wondering, “Is this really the right time to buy?”

            No one – not even the experts – can determine exactly the right time to invest. That’s why any investors use dollar-cost averaging to smooth out the ups and downs of stock price changes. The strategy is simple: you commit to investing a fixed amount of money at regular intervals. This amount buys more shares when prices are low and fewer shares when prices are high. Over time, you average cost per share may be less than the average price per share. While dollar-cost averaging is not volatility proof, it can help maintain your investment discipline through market circles, keeping you focused on your long-term goals.

 

3) Now may be a great time for a portfolio checkup

            Is your portfolio sufficiently diversified to endure through any market conditions? Meet with your financial advisor to find out. Your portfolio’s weightings in different asset classes may shift over time as one investment performs better r worse than another. Together with your advisor, you can re-examine your portfolio to see if you are properly diversified. You can also determine whether your current portfolio mix is still a suitable match with your goals and risk tolerance.

 

4) Tune out the noise and gain a longer-term perspective

            Numerous television stations and websites are dedicated to reporting investment news 24 hours a day, seven days a week. While the media provide a valuable service, they typically offer a very short term outlook. The two front page headlines below were published one day apart.

 

5) Believe your beliefs and doubt your doubts

            There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to these fundamental beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals. Your financial advisor has likely experienced volatile markets before and can help you put it all into perspective. Call your advisor today to find out how you can ride out the current volatility and prosper in the better days to come.

 

Information by: Investor quarterly – Franklin Templeton Investment