Tips to Survive Market Volatility
The Dow Jones Industrial Average (DJIA) closed at 26,616.71 on January 26, 2018, an all-time record that has not been surpassed. Since then, the market has shown investors that volatility is back – and may be around to stay – this year. The unpredictability may seem long overdue for those who have been in the market for decades. For those who are used to the smooth-sailing growth of the last nine years, however, it’s a different story. The constant ups and downs can be both nerve-racking and troublesome.
Since March of 2009, we have only seen a ten-percent or greater market correction – or decline – a total of four times. Historically, investors should expect to see corrections every 12 to 18 months. When we don’t, it is easy to forget that investing inherently contains risk.
Three tips for staying calm and riding it out
If you are more than a spectator of today’s market volatility, the fact that it is normal may not soothe your fears. You may be watching years of retirement savings sway considerably on a daily basis. Even if you have less riding on the market, the fluctuations may still be scary and unsettling.
There are three activities that can help any investor survive in a volatile market:
- Gather a historical perspective – Stock market investments are meant to be long-term (i.e., for at least ten years), so it is always a good idea to look at their performance historically. Websites like MarketWatch offer great charting tools for free. You can even compare your stock to the Volatility Index (VIX), which calculates expected market volatility based on options data from the Standard & Poor’s (S&P) 500 index.
- Educate yourself on what you are seeing – Many people focus on one number, like DJIA, and use that information to determine whether or not their portfolios are doing well. In reality, though, there are many numbers floating around in the investment world – and they all represent different things.
- DJIA – Often called “the Dow,” the DJIA is merely a price-weighted average of 30 large American companies that are either traded on the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotation (Nasdaq) exchange.
- S&P 500 – Another index of American companies, the S&P 500 weights 500 large companies based on their market value – as opposed to their current stock value.
- Nasdaq – By itself, Nasdaq refers merely to an exchange – or an organization where stocks, bonds, and other investments are bought and sold. The Nasdaq Composite Index, on the other hand, is a capitalization-weighted index of thousands of stocks (typically somewhere between three to five thousand) traded on the Nasdaq exchange.
- Reassess your financial goals – After you look at the historical performance of your portfolio and determine which indices best represent your stocks, it may be a good time to re-evaluate your financial goals. The mid-point of the year is a perfect time to reassess your finances – especially your goals and risk tolerance.
What’s your strategy?
The volatility might be here to stay, but that doesn’t mean that the overall picture for investing is negative in 2018. In fact, at this point, the S&P 500 index is still positive for this year when you account for dividends. The market may not be growing at the speed we’ve seen in recent years, but it is now close to its average annualized pace.
The best way to navigate today’s market is to stay calm, gather information, and educate yourself. If you are still uneasy, you may want to seek advice from a Registered Investment Advisor (RIA). These firms have a fiduciary duty to act in good faith, providing guidance based on their customers’ needs – instead of their own.
With the right guidance and a long-term mindset, any investor can survive a volatile market. Is your portfolio ready?
The opinions voiced in this material are for informational purposes only and not intended to provide specific advice to any individual. This information is not intended to be a substitute for individualized tax, legal, or investment advice. We suggest that you discuss your particular situation with a qualified tax, legal, or financial advisor.