Stock Market Volatility: 3 Things You Shouldn’t Do
Stock market volatility can be an uncomfortable ride. When your hard-earned wealth is invested in the stock market, seeing it rapidly increase and decrease in value can be disconcerting, to say the very least.
Whether or not you’re affected by market volatility, it isn’t something you can’t avoid in investing. Volatility always exists; we only seem to notice when it negatively affects our portfolios. Prudent investing often involves accepting this reality, and riding out these waves for long-term success, rather than adopting a myopic view and trying to avoid it.
Without further ado, here are some of the things you shouldn’t do when encountering stock market volatility:
Don’t fixate on the news
The media tends to put volatility under a microscope and exaggerate the importance of ups and downs in the market. It’s important to remember that their primary concern is ratings, which translates to eye-catching headlines and bold predictions of future market performance.
Although it’s essential to stay informed, the more you become fixated on the media’s reporting of recent stock market changes, the more volatile and risky the market can appear. It’s the long panned-out view of the market that serves long-term investors best, rather than glimpsing at slim slices of market performance.
Don’t be complacent
The best plans are ones that are pre-emptive. So when there’s stock market volatility, it’s a great time to honestly asses your emotions, and plan for even choppier waters ahead.
Although it can be important to stick with your long-term investment plan, this is often easier said than done. During 2008, for instance, the stock market lost nearly half its value. If you sold and panicked at a low, you’d be sorely disappointed to see the market recover and reach an all-time high.
When facing stock market volatility, it’s a great pretext for examining your risk tolerance, and even scheduling a financial check up with your trusted advisor. Making small changes in your asset allocation and investment policty statement now (such as investing slightly more in bonds) can help prevent rash decisions later.
Don’t think you (or anyone else) knows what will happen next
The reality is that after a stock market drop (or any time, actually) no one can accurately predict which direction the market will move next. One thing you can be certain of, however, is that media figureheads and investing experts will make bold and enticing economic predictions about the future.
As enticing as a forecast may be, the data shows that timing the market rarely works out for the average investor. Your best action during times of stock market volatility is often inaction, and staying true to your long-term plan.
Learn more about investing during stock market volatility
At LexION Capital, we strictly focus on our clients’ investing needs and goals over the long-term, and don’t let temporary market volatility sway our strategies. If you’d like to learn more about how we can help you achieve your financial goals, let’s start a conversation today.