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Understanding Market Volatility

Curtis HaighBlog

Picture of female pulling at her hairMarket volatility can be a challenging and stressful time for investors; and understanding market volatility can be confusing.  The stock market can experience sudden and unexpected fluctuations, which can cause fear and uncertainty among investors. However, there are several strategies that investors can use to manage market volatility and protect their portfolios.

One strategy is to diversify your portfolio. Diversification means spreading your investments across different asset classes and sectors, both public (stocks and treasuries) and private (bonds). This helps to reduce risk by ensuring that you are not overly exposed to any one particular stock or market. By diversifying your portfolio, you can reduce the impact of market volatility on your investments.

Another strategy is to focus on long-term investments rather than short-term gains. Short-term fluctuations in the market are normal and can be difficult to predict. By focusing on long-term investments, you can reduce the impact of market volatility on your portfolio.

Another strategy is to use dollar-cost averaging. This means investing a fixed amount of money at regular intervals, regardless of the market conditions. By doing this, you can take advantage of market volatility by buying more shares when prices are low and fewer shares when prices are high. Consider regular contributions to an investment rather than a lump sum. If you have a lump sum, consider investing only part of it in the market and the rest in a high interest savings account.  Many advisors can make this really easy by doing it entirely in one account.

It is also important to have a well-defined investment plan and stick to it. Having a plan in place can help you to stay focused on your long-term goals, rather than getting caught up in the short-term fluctuations of the market.

Lastly, it’s important to keep in mind that market volatility is a normal part of investing. While it can be stressful, it is important to remember that the stock market has historically always recovered from downturns.  Focusing on the long term and blocking the news cycle can bring peace of mind to an otherwise stressful time.