What to Do During Volatile Markets
Turbulent times lead to unpredictable markets. Many factors can cause these swings in the investing world such as housing bubbles, political elections, international instability, and as we have seen recently, a global health pandemic.
Despite this uncertainty, experts believe that staying calm and staying the course is wise. This will allow one’s portfolio to have the chance to recover compared to panicking and selling out during a downturn.
Don’t Sell Out
Although it can be alarming to review your account in this market decline, comfort can be found through reviewing the history of the market. Essentially, it shows that after the biggest corrections, the average growth rate was typically strong (see chart below).
*Source: Morningstar; S&P 500 Total Return
If you are still nervous about the markets, only make incremental changes of 5%-10% to your account. While we cannot accurately predict the future, we can be hopeful that these market fluctuations will lead to long term growth.
Don’t Stop Your Contributions
One of the biggest investment mistakes is to stop saving during a downturn, especially if your employer makes a match. It is important to follow the ‘dollar-cost averaging’ theory which explains that, if one is to regularly invest a fixed amount of money, they will benefit due to buying when the market is both low and high. In this theory, one must think of an economic downturn as a sale, so not investing during this ‘sale’ could mean losing out on growth potential in the future.
You are not alone. Times of financial distress are perfect opportunities to reach out to us here at Spectrum as we would be delighted help evaluate past investments, manage future risk, and rebalance your portfolio in a way that is best suited for you.