The news surrounding market volatility is almost enough to make one bolt under the bed, never to invest again. The headlines often speak of “roller coasters”, “turbulence” or “markets getting roiled”.
Market volatility is the new normal. What does that mean exactly? Days of market ups and downs are here to stay. What we know is that the wider the swings in the price of an investment, the harder it is not to worry. None of us like the prices of our investments to bounce around. Yet that is exactly what they do.
A way to handle the uncertainty is to think about not cashing out or staying on the sidelines. Instead, you should consider the following:
Stick to business as usual. Investors should resist the urge to exit, as avoiding the markets can cost you over time. Over the past 2 decades, the S&P 500 provided an annual return of 9.25%, but the average stock fund investor took home just 5% – a little more than half. Why is that? It is because we often see investors coming in and out of the market, driven by an emotional reaction to normal gyrations. It’s not a good idea to react to a down day on the market by converting everything in your portfolio to cash. If you do, odds are you’ve just taken a loss on all of your investments. What’s more, it can be very difficult to know exactly when to hop back in – and staying out means losing out on potential gains when the market does go up again.
Buy “on sale”. Stock market pullbacks are buying opportunities for long term investors. Think of it this way: it’s like having your eye on a coveted coat for months. Yet when it goes on sale, you don’t buy it. Instead you wait for it to return to full price, or even increase in price, and then you make the purchase. It sounds silly but this is often what investors will do. Buying when others are selling means taking contrarian action, which can be hard. Staying calm and keeping your head in times of market uncertainty isn’t easy, but buying in when stocks are at a discount, and putting your cash to work, makes good financial sense.
Keep your eyes on the prize. Tune out the noise and keep focused on what you ultimately hope to accomplish. Remember: long term, the market is your friend and while you can’t control what tomorrow brings, you are in control of your finances. Bottom line: Consider staying invested for the long haul and don’t let today’s distractions derail your strategy.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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