This year has seen some major ups-and-downs in the stock market. While fluctuations have been relatively small, their repetitive nature is significant.
For instance: you may not have noticed on the average day if the S&P 500 ended 1% below its intraday high or 1% above its intraday high, but now consider that it has fluctuated between the two over 70 times in 2018, and those minor shifts start to take on a lot more weight (this intraday fluctuation was recorded six times in 2017).
While the stock market maintains a seemingly placid overall performance on the surface, growing uncertainty over external and domestic economic factors are causing unease among investors, and exposing underlying volatility in the marketplace.
As an investor, you probably don’t enjoy hearing the phrase “volatile stock market”. Even a novice investor can tell you that volatility and risk aren’t often far apart. But understanding the role of volatility in stock investing is one of the keys to building a strong portfolio.
There are tools and resources available to you that can assist you in navigating a volatile stock market so you can understand how to prepare yourself for extreme market fluctuations and protect your portfolio from major impact.
Spotting the signs of a volatile stock market
Whether they are small or large, repetitive and aggressive market fluctuation is a sign of volatility. If we look again at recent S&P 500 performance, we can see signs of a volatile stock market:
A recent Market Watch report cites the S&P trading up at 4.8% over Thanksgiving week, but closing out the following week down at 4.6%.
When you are looking at numbers like this, it may give rise to some uneasiness, but it’s important not to let anxiety get the better of you. The worst thing you can do as an investor is panic at signs of market uncertainty.
If you can understand the signs of a volatile market, you can know how to plan. Here are some tips to help you plan and prepare your portfolio for volatility.
How to Navigate a Volatile Stock Market
Plan for the long term
Smart investors keep this in mind when building their portfolios. Planning for long term goals can help you stay focused and maintain stability when the market starts shifting. It’s helpful to remember that markets are cyclical and corrections – both ups and downs – are a natural part of this cycle.
Panic is one of the worst things for a weakening market. It can often exacerbate a fragile situation and delay natural recovery time. Long term investment goals can keep you grounded in the event of a downturn and prevent you from entering into panic-mode.
Calculate bear markets in your investment planning
A bear market is defined as a decline of 20% or more in stock prices. They happen, accept it. Once you are able to do that, you can start incorporating them into your investment planning.
Consider your stock-to-bonds ratio; are you may need to consider a re-alignment of your portfolio’s risk tolerance.
Diversify your investments
Piggy-backing on the above, a well-diversified portfolio can also keep you cushioned against a volatile market. You should be investing in a healthy variety of stable stocks, bonds and assets. Avoid investing heavily in a single asset. A diverse array of investments can mitigate any significant losses should one of your assets experience devaluation.
Don’t try to beat the market
While planning for impending market cycles is a good thing, you should not be planning on trying to beat the cycles in favor of short term gains. Timing the market is never a good idea. The temptation may tug at you sometimes but the risks are too great and you will most likely come in at the wrong time.
Pursuit of short term gains can also expose you to unnecessary risks of fraud.
- Beware of short and distort scams
- Short and distort scams are a common form of investment fraud found in bear markets. In short and distort schemes, the fraudster will take a short position on a stock and then use misinformation, often through smear campaigns, to artificially drive down its investment value.
Seek the advice of an investment professional
A financial adviser can play a very important role in helping you plan and build your portfolio. An adviser can be both a sounding-board and a confidant. They can help you in determining whether your investment goals are realistic and help you take actionable steps in achieving them.
It is important to find the right financial adviser though; one who fits your individual needs and has your best interests in mind. When choosing an investment adviser, you need to look at whether they stand to realize any gains from advising you towards one decision or another.
Searching for conflict-free advisers may be a good starting point when you are looking potential candidates. A conflict-free adviser does not receive any incentives or rewards for making product recommendations.
Even the most seasoned investors have lost money in a volatile stock market. Investment losses are an inherent part of everybody’s investment experience. Losses do not reflect your abilities or financial readiness, what matters is how you react to and recover from investment losses.
One of the best ways to help you recover after experience a stock market loss is to seek the help of a professional stock market attorney. An attorney can help you determine not only what factors resulted in your loss, but what recovery options you have available. Together with a trusted financial adviser, a stock market attorney can provide you with a strong network of support to empower you in making smart investment decisions.
Looking for experienced attorneys to help you through a big loss? Contact us today to take the next steps toward getting your money back.