Top 10 Tips for Handling Market Volatility in 2019
It’s no surprise that some investors were rattled by the way the stock market closed out the final quarter of 2018. How did you handle increased market volatility? If you are unsure of what you should do heading into 2019, then check out our “Top 10 Tips For Handling Market Volatility”, and contact your DirectAdvisors plan advisor today!
1. Time Matters
As the saying goes, time in the market is more important than timing the market. When evaluating the performance of your portfolio during turbulent times, don’t be tempted to focus on short-term performance: 1 month, 6 months, or 1 year. Performance figures based on longer periods of time (3 years, 5 years, or 10 years) are much more meaningful.
2. Losses Are Normal
Whatever you invest in, be sure you are comfortable with the potential for losses. Be sure that you can handle the potential downside of your portfolio allocation. If it’s been a while since you’ve reviewed your investment risk tolerance, be sure to reach out to your DirectAdvisors plan advisor to walk you through an assessment, which typically takes 5-10 minutes. Remember that the worst thing that you can do in a volatile market is to panic and sell what you have – locking in losses at a market low.
3. Portfolio Returns Can Be Complex
When you make regular contributions to your employer-sponsored plan, you will have a series of many small investments, each with a different starting date and a different duration. You will also most likely be invested in a variety of investment options and asset classes. Additionally, no matter how much you try to control everything, your returns will be impacted by random events that are impossible to predict. Make sure you keep the big picture in mind, and when evaluating your portfolio’s return, to make sure you are comparing “apples to apples.”
4. Don’t Believe Everything You Hear
Friends, neighbors, relatives, and even the latest “talking head” on TV may tell you the great returns they are getting – don’t believe them. Take what they are telling you with a grain of salt: if they’ve lost money or made big mistakes, they’re highly unlikely to come brag to you. Focus on doing what is appropriate for you and your long-term goals.
5. Take On An Appropriate Amount Of Risk
The stock market will always experience ups and downs, especially in light of current events and headlines. If you are able to buckle in and ride out the downturns, you will be able to experience the subsequent highs in the market that will follow. That being said, it is always important to make sure that your investment allocation is appropriate for your risk tolerance and time horizon. If you are concerned that you are over-exposed to the stock market in light of these factors, we recommend that you speak to your DirectAdvisors plan advisor to see if you are appropriately invested.
6. Don’t Put All Your Eggs In One Basket
The top performing asset class varies from year-to-year, so it’s important to diversify your exposure across multiple asset classes. The 5 primary asset classes investors should consider incorporating into their retirement portfolios include large company stocks, medium/small company stocks, international stocks, real estate, and bonds. Although diversification does not guarantee you won’t experience losses, it is one of the most important components in achieving long-term growth while minimizing risk.
7. Don’t Chase The Top Performers
Have you ever found yourself sitting in a lane of traffic, while the lane next to you seems to be moving right along? Inevitably, as soon as you switch lanes you somehow find yourself at a standstill yet again. Don’t make the same mistake with your investments. Choosing investments based on short-term performance metrics may mean you are moving in to a lane of traffic just as it is coming to a stop. Instead, choose investments based on long-term performance, and ensure you’re sticking to your diversification strategy.
8. Avoid Headline Risk
It’s almost impossible to turn on the TV, radio, or internet without seeing financial headlines that are intended to influence investors’ portfolio decisions. As a result, investors may try to “time the market”, rather than maintaining a buy-and-hold, strategic approach that involves periodic rebalancing of the portfolio. Most research suggests that the former will, in the end, lead to lower portfolio returns, as it is nearly impossible for the average investor to successfully “time the market”. Remember, in order to successfully “time the market” you need to be right twice – when you get out of the market, and when you get back in.
9. Don’t Let Fear Motivate Your Decisions
Watching your retirement account balance drop can be scary, but it’s not the time to make large changes to your portfolio. Often times, investors will move their investments to cash in an attempt to stop the bleeding, but by doing this they have locked in their losses. If your investment lost 20%, could you ever make that up by investing in something that gives you just a 1% rate of return? Instead, make sure you understand how much you have invested in the stock market before things turn volatile. This way, there are no surprises and you can ride out the volatility until the market rebounds.
10. Leverage DirectAdvisors To Evaluate Your Investments
You aren’t in this alone. Take advantage of professional guidance and advice from DirectAdvisors. We’re here to help you evaluate your risk exposure, diversify your portfolio, and create a custom investment plan tailored to you. Contact us at [email protected] or call us at (518) 362-2119 today!