Covid-19 upended many of the plans we had for 2020. For many of us, our plans for retirement have been upended, too. Many investments fluctuated wildly over the course of the year. While we may not see fluctuation like that again, we always must be prepared to deal with market volatility when we are invested in the market. If you were off-put by high volatility in your portfolio, there are several strategies available to you to help you fare safer on the roller coaster of the market.
One of the most important things you can do is not panic. When you see your retirement savings drop 10% or more in a single month, you may be tempted to sell to avoid further losses. This can often be rather costly, as you will often sell low and then re-buy high as the market moves back up. The majority of people who stay invested through short-term volatility avoid these costly losses.
Another way to address volatility in the markets is preemptive: consistently reviewing your investment strategy. Your needs change dramatically over your lifetime. You will not have the same needs or wants in your 20s as in your 60s. By going over your investment accounts at least yearly, you help keep your investments in line with your goals, tax bracket, timeframe, liquidity needs, and risk tolerance. This helps you maintain confidence when volatility does inevitably arrive.
One of the best ways to help reduce large fluctuations in your portfolio is diversification. By spreading your assets into stocks, bonds, and cash you can smooth out the ups and downs of the entire portfolio and be able to sleep better at night. If you are not sure what your asset allocation should be, you may want to contact a financial professional to help you.
When experiencing market volatility, having confidence that our investment strategies, including diversification, are focused toward our goals may help reduce worry and stress about short-term outcomes.
By: Louis DeVicaris
Securities and advisory services offered through LPL Financial,a registered investment advisor. Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing includes risks, including fluctuating prices and loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.