How to Approach a Volatile Market
When managing your wealth, it is important to have a prepared approach for volatile markets. By definition, volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can be measured by the variance between returns from that same security or market index. The more volatile the security or index the riskier it usually is.
Last year, 2015 was a year of volatility for most market indices (S&P 500, DOW and Emerging and Developed International Markets.) The S&P 500 ended the year up +1.38% and the DOW up +0.21%, although we had a -12% decline midyear.
Most investors ask the proverbial question, “How do I prepare and protect my portfolio from volatile markets?”
Here are some simple guidelines:
- Follow your investment plan. Don’t veer from the plan based on fear
- Look at your financial goals: income need/capital preservation/growth, risk tolerance and time horizon at least annually.
- Markets go up and down, some years worse than others. Don’t panic. Volatility can be your friend. Don’t try and time the markets
- Asset Allocation and Diversification are key. Don’t make any one big bet. Quality and consistency of investments make a difference.
- Don’t listen to all the noise on the news and take emotion out of investing.
- Don’t look at your portfolio daily as fluctuations will occur.
Volatile markets usually end up being insignificant in the long run. They can be painful to watch, but are the best time to invest. Corrections will occur. (2015 S&P 500 Chart)