How should serious investors respond to volatility?
Market volatility describes the extent of variation in the value or price of a financial instrument or security over a period of time. Prices of goods and services must adjust to reflect the continuous ups and downs in any market. And without consistency, it’s hard to maintain the value of your investments.
The inherent nature of market volatility makes it inseparable from financial markets. It’s difficult to avoid entirely, but those that favor holding on to their stock will try nevertheless. In contrast, active investors with more experience often embrace volatility by incorporating it into their trade strategies.
What causes Market Volatility?
Market volatility occurs frequently and unexpectedly. It is a natural component of the market cycle and can be triggered by factors like supply chain conditions, politics, advancements in technology, major corporations changing direction, monetary policies and natural disasters. Recent examples of market volatility include:
What are some appropriate responses to Market Volatility?
Seasoned investors know to expect the unexpected, but they also have a set of tactics, routines and formulas for utilizing market volatility. You can take advantage of it yourself by starting out with some of the following suggestions.
1. Do not panic.
This is the first and most important thing to remember. Finance is a sensitive and sometimes emotional subject, so feeling apprehensive is normal. It’s never easier to make impulsive decisions than when you’re in a state of disarray. So if the stock market is causing panic, take a deep breath because staying calm and calculated is the only way to avoid taking an action that can’t be undone (and all it consists of is a couple taps on your smartphone).
The absolute best thing to do when your anxiety is in overdrive is to call your financial advisor. They’re aware of the market situation too, but more importantly, they’re also aware of YOUR situation. You’ll receive the expert advice you need, and it won’t be some vague tip you found via Google. They will present you with the exact solution, but only after analyzing the entire situation along with how it applies to your custom portfolio and unique needs.
While not technically an emotional support line, they pretty much are in this case. It’s just another benefit of having a client-advisory relationship you can count on.
2. Take a fresh look at your portfolio.
Is your portfolio sufficiently diversified? Does your asset allocation plan correspond with your investing goals, or have your long-term goals changed? Anytime markets become highly volatile is good time to review your portfolio. Since change begets change, you’ll want to make sure you have a Plan B and a Plan C in your pocket in case you need to make quick decisions.
3. Maintain your investment plan.
This one goes along with #1. In addition to not panicking, you’ll want to remind yourself to keep your eyes on the long-term goals rather than simply “getting by” in the short run. Experts often recommend sticking to your investment plan since markets are continuously fluctuating. Of course, there are occasions when markets change permanently. It’s always best to contact a certified financial advisor regarding changes to your portfolio.
4. Explore opportunistic buying.
Market volatility is known to open windows of opportunity for investors to pick up assets at reduced prices. You’ll encounter many opportunities to expand your portfolio when you monitor markets closely.
5. Stay updated.
Depending on what caused the volatility, it may be a good time to invest in new innovations and explore niche markets on the rise. Pursuing a broad knowledge of key industries while staying current on economic trends puts you in good position on the playing field.
In general, investing strategically requires a lot of quick decision making. And although no one can predict everything, being cognizant of market behaviors gives you edge in planning and forecasting.
Let’s get to work on your strategic investing plan.
Risk is always part of investing. That’s why EXOS Wealth Strategies has certified financial advisors available to help you understand market conditions and provide strategies that align with your custom investment plans and risk tolerance preferences.
