Practically every class of investments have been volatile this year. The Coronavirus crisis followed by widespread civil unrest caused some of the biggest one-day losses in the history of the stock market. But we also witnessed some of the biggest one-day gains. Investment volatility is a fact of life. At times like this it is important to cling to these well-known basics that can help you to stay the course:
Remain Calm –
Do not get too excited when the market is high, and don’t get too discouraged when it drops. Resist the urge to overcorrect. Selling in a panic means you’ll be less invested in the future to generate dividends or participate in any potential recovery.
Stay Invested –
Even the experts cannot predict when markets may turn. Trying to “time the market” usually leads to poor decisions.
Stick to Your Strategy –
When a sailor encounters rough seas, he will keep a steady hand on the tiller and his eyes on the horizon. In investing, the equivalent is to maintain a good, balanced mix of assets aligned with your needs, goals, time horizon and risk tolerance.
By owning a diverse variety of assets, you may be able to create a portfolio that is somewhat shock resistant.
Market fluctuations can throw the mix of investments out of line with your objectives. This means that you may have to buy or sell assets to maintain your desired level of risk. A big market drop can also offer the chance to add investments at sale prices.
Be Patient –
While nothing in life is guaranteed, history shows us that major stock market declines are historically followed by recoveries to new highs. Sometimes it takes weeks, and sometimes it takes years. But every major bear market so far, through 2019, eventually recovered and reached new highs.**
*Diversification cannot eliminate the risk of investment losses. Past performance won’t guarantee future results. An investment in stocks or mutual funds can result in a loss of principal.