You have no doubt noticed that the first four months of 2018 stock market activity has been starkly different from 2017. Even though the U.S. stock market is only in the second quarter, it has already seen far more volatility than occurred over all of last year. So far the market has seen more than three times as many sharp movements – a 1% change, in both directions – as there was in 2017.
Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when your money is on the line. Though there’s no foolproof way to handle the ups and downs of the stock market, the following tips can help.
1. Don’t Put All Your Eggs In One Basket
Diversifying your portfolio is one of the best tools to manage market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of investments has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can’t eliminate the possibility of market loss.
2. Focus On the Forest, Not On the Trees
As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle if you still have years to invest, don’t overestimate the effect of short-term price fluctuations on your portfolio.
3. Look Before You Leap
When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The modest returns that typically accompany low-risk investments may seem attractive when more risky investments are posting negative returns. Before you leap into a different investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.
In the end, the right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.
All investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful. Past performance is no guarantee of future results. Independent contractor of Money Concepts International, Inc. All securities through Money Concepts Capital Corp. Member FINRA/SIPC. 11440 North Jog Road, Palm Beach Gardens, FL 33418 (561)472-2000