It’s often impossible to explain stock market volatility until long after the dust has settled. And these past couple weeks of volatility are no different.
That’s why it’s a good idea to take day-to-day market events in stride and stay focused on your long-term objectives.
If you read the business section of a newspaper or watch CNBC or other financial shows, you’ll hear the talking heads discuss bull and bear markets, market corrections, and the like. As an investor, you should be aware of what these terms mean, but you should also know that it usually never makes sense to think about changing your investment approach based on today’s headlines.
The Markets are Unpredictable
From December 31, 1986, through December 31, 2013, the monthly performance of the Standard & Poor’s 500 Index ranged from a high of 13.47% (in January 1987) to a low of –21.54% (in October 1987).
However, despite the stock market’s ups and downs over that 25-year period (including bull and bear markets), the S&P 500 Index averaged a 10.30% annual return, a solid performance for investors focused on the long term.
4 Tips for Dealing with Stock Market Volatility
One of the most common mistakes investors make during bull markets is to move money into their “winning” investments in hopes of hitting it big.
Conversely, during bear markets, investors sometimes lose patience and sell the investments that are declining in value. Unfortunately, investors seldom get this timing right and react too late to be able to capitalize on gains or avoid major losses.
1) Maintain Your Balance Hold on to the mix of stocks, bonds, and cash investments that are tailored to your objectives, time horizon, risk tolerance, and personal financial situation.
2) Continue Investing Regularly Keep making regular contributions to your employer-sponsored retirement plan, IRA, and other investments so as to take advantage of dollar-cost averaging.
3) Make Change Gradually If you need to make adjustments to your portfolio, make the changes gradually and with clear purpose and intention. Do your best to not let your emotions override your long-term investment strategy.
4) Tune Out the Noise These days, investors are bombarded by an amazing amount of financial news and information. Try to ignore all the noise and keep your focus on your long-term goals.
The month of September, traditionally speaking, is usually a pretty volatile month in the markets. On top of that, the Federal Reserve will decide this month if it’s the right time to begin raising interest rates. So buckle-up, as this month could very well be a repeat of August, but with even higher volatility.
Then again, it could turn out to be a smooth ride through the month. It’s the uncertainty, the unpredictability of gauging where the markets are headed that will definitely make for an interesting September. Stay tuned…..