Investor Tips for Turbulent Markets
Volatile markets can inspire feelings of fear and anxiety among investors. Market surges and selloffs can occur for any number of reasons, including political factors, inflation fears, trade policy concerns, tax breaks, economic optimism or pessimism, global events or a recession watch. When the stock market gets rocky, focusing on your overall financial picture, combined with sound planning, can pay dividends.
These five steps can help steady your pulse during turbulent markets and elevate your financial security:
1. Clarify your financial goals. Solid financial goals, tied to a sound long-term financial plan, typically will survive short-term market ups and downs—and they can help you weather market volatility, whatever the cause. If you don’t yet have clear, prioritized goals—each with steps to achieve the goal, a price tag and a time frame—take a breath and set them to help guide your investment approach.
2. Diversify your assets. When you have a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio, you expose yourself to concentration risk. This can amplify your potential losses from a significant market movement. It's important to diversify across, and within, the major asset classes. Do you hold multiple asset classes (such as stocks, bonds and cash equivalents)? Are your stock holdings spread across different sectors (biotech, electronics, consumer staples and emerging markets, to name a few)? Is your bond portfolio diversified by issuer and type of bond (corporate, municipal and Treasury)?
3. Focus on your future. Avoid impulsive decisions when markets become volatile or economic conditions change. Instead, go back to step 1, and be aware that strategies such as dollar-cost averaging can help you stay focused on your future. Dollar-cost averaging involves investing your money in equal portions at regular intervals rather than all at once or automating deposits to investment accounts. This can reduce or remove emotion from decision-making and supports continued investing regardless of the existing market conditions.
4. Understand the impact of changing interest rates. When stock markets are volatile, demand for fixed income products often rises, which in turn can drive up prices and depress yields. When interest rates eventually rise again, bond prices generally fall. But interest rate risk isn’t the only factor to consider when you invest in bonds and other fixed income products like bond mutual funds or exchange-traded products (ETPs). For example, duration risk, which is the risk associated with the sensitivity of a bond's price to a change in interest rates, is another factor to keep in mind. Research the risks of investment products and strive for a balance of assets to minimize the effects of interest rate changes on your entire portfolio.
5. Protect your money. Fraud is a growing threat, and financial scammers operate in all market conditions. In times of high market volatility, investors may be particularly vulnerable to pitches touting guarantees of "risk-free" returns. Combining a guarantee with a specific amount of money you will make—"this is a safe investment that will earn you $6,000 every quarter"—is known as phantom riches. You can reduce the likelihood of fraud by working only with registered investment professionals—using FINRA BrokerCheck to find out if a person is registered to sell securities—and by sticking to your predetermined financial plan.
Stock market fluctuations are outside your control. So control what you can, and focus on key investing concepts such as asset allocation and diversification to make sure your investments remain aligned with your goals.
Learn more about investing and guardrails for market volatility.
