This is the fifth installment in an eight-part series: Navigating Market Volatility. In simple terms, market volatility is the relative rate at which the market goes up and down. Dramatic shifts can be scary, even for the most experienced investors. To keep market swings from making you anxious, take steps to help you respond to volatility in a deliberate way.
To read the previous post in this series click here.
Navigating Market Volatility: Try Not to Dwell on Short-Term Performance
In the face of market volatility, your instincts might compel you to act quickly (panic selling and/or euphoric buying). But this type of impulsive trading can—and usually will—be detrimental to your long-term results.
The reason you bought an investment in the first place is because you believed in its potential for growth. If you find a company with strong business fundamentals, short-term price fluctuations probably won’t affect its long-term value. In fact, short-term periods of volatility often present a great time to buy more stock, if you still believe in the company. On the other hand, be sure to have an exit strategy in place if a company’s stock reaches your predetermined target price, or if the fundamentals of the business take a negative turn. And remember, before selling a losing investment, take a moment to decide if the downturn is simply a short-term blip or if it’s actually a permanent risk to your capital.
Dramatic shifts in the markets can be scary, even for the most experienced investors. Although it’s human nature to want to “get out” when things look bad, choosing to stay invested in spite of market volatility can often be the best course of action, if you have a plan in place and are confident in your strategy.
Click to read Part 6 of the series: Diversify
All investments are subject to risk, including the possible loss of the money you invest. Past performance does not guarantee future results. There is no guarantee that any particular asset allocation, or mix of funds, or any particular mutual fund, will meet your investment objectives or provide you with a given level of income.