Investing can be a roller coaster—and, when the market starts dropping, it may even feel more like a haunted house. With recession fears mounting, what can investors do to stay the course and escape unscathed? Here we discuss five tricks to help you navigate a scary stock market.
Anticipate and Avoid Surprises
If it has been a while since you reviewed your portfolio or evaluated whether your asset allocations are still in line with your investment goals, now may be a good time. Everyone's risk tolerance is different, and if wild market swings make you nervous enough to want to cash out, you may want to consider less volatile assets.
Step Back and Get a Bigger View
While the market is unpredictable on a day-to-day or week-to-week basis, over time, trends become clearer. If you are worried about the ups and downs of the last few months, zoom out to a 5- or 10-year view and see how these downturns become blips on the screen. The lesson here is that nothing is permanent—even a negative YTD return is likely to wash out over the next few years.
Identify Your Fears
Everyone's reasons for investing look a little different—which means everyone's downturn fears are a little different, too. Identify what you are afraid of when your investments decline in value:
- A delay in your retirement?
- A cash crunch if you lose your job?
- A "lost decade" of flat returns?
By knowing what you are really worried about, you will be in a better position to adapt. For example, if you are concerned that your investments may decline in value at the same time you need to tap them to help cover bills, you may want to beef up your (non-invested) emergency funds instead. If you are worried about the impact of market swings on your retirement date, you may want to talk to a financial professional to see if your asset allocation is in line with your retirement plans.
Identify your "Control Factors"
When your finances feel out of control, one of the most productive things you can do is to redirect your energy to making a list of things you do have control over. Whether this is increasing your savings rate by setting up automatic transfers, taking a few extra shifts at work for overtime pay, or selling some extra items, seizing on the things you can change can help you avoid obsessing over the things you cannot control.
Stay the Course
If you have reviewed your asset allocation and evaluated your goals, there is not much else to do but wait. The temptation to take action during turbulent times can often be overwhelming—but as long as you have a well-thought-out investment plan, staying the course can help you avoid making rash decisions (like cashing out at the bottom of a bear market or YOLO-ing into speculative investments). Remember: you should re-evaluate your investments and stock holdings only when there is a change in your goals, not in the market.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Asset allocation does not ensure a profit or protect against a loss.
Past performance is no guarantee of future results.
This article was prepared by WriterAccess.
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