When Markets Are Volatile, Focus on What You CAN Control
Obviously, you can't control the stock market. But you can control how you react to the inevitable bumps in the road. Here are three ways to keep your cool and avoid worsening any damages during tough times.
If the recent increase in market volatility and drama in our political landscape have you feeling more cautious about investing in the stock market, you’re not alone. In a recent survey of more than 850 Schwab clients, 52% said they’re feeling bearish, compared with just 41% a year ago.
While every investor is different, periods of volatility can be a wake-up call to make sure your portfolio is positioned correctly, based on your goals and risk tolerance. Navigating through rocky markets can be tough, but focusing on things you can control can help you stay the course.
1. Take the long view
In times of extreme market volatility, each fluctuation can be unnerving. But emotional reactions to short-term market conditions can put you at risk for further financial loss. It’s important to remember the ups and downs in the market are part of the investing process, and even bear markets historically have been relatively short. According to the Schwab Center for Financial Research, the longest bear market since the late 1960s was a little more than two years, and that was followed by a nearly five-year bull run.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Determine your risk profile
Investing is inherently uncertain, and it’s important to be honest about how much risk you’re willing to take. Periods of increased market volatility can be particularly enlightening to help you understand your true appetite for risk. Determining your risk tolerance informs how you should diversify your investment portfolio among stocks, bonds and cash equivalents — higher potential rewards generally come from taking higher risks.
To better understand your risk tolerance, start with some simple questions:
- Do you need your portfolio to generate income now or in the near future?
- Can you tolerate fluctuations in the value of your investments, financially and emotionally?
A conversation with a financial professional can also be helpful when you’re trying to understand your risk tolerance and build a portfolio that you can stick with through the ups and downs of the market. In fact, about one in five Schwab clients said they sought investing advice last quarter, according to the survey, and nearly 80% said they feel more confident in reaching their financial goals with at least periodic advice from an adviser.
3. Diversify and rebalance your portfolio
Having money spread across different asset classes (or types of investments) is important, because each can respond to the market differently. It’s not always the case, but when one is up, another can be down. Deciding on the right mix can help cushion the blow during volatile markets.
Once you determine your target allocation, it’s important to periodically rebalance to maintain that mix. In fact, when we asked Schwab clients what moves they made last quarter amid all the volatility, the most common action was rebalancing.
If you don’t already have one, create a financial plan — it can help remove emotion from investing and keep your focus on the progress toward your financial goals instead of your portfolio performance against the market. And once you have a plan, don’t forget to revisit it periodically to make sure it’s still aligned with your goals, risk tolerance and overall circumstances. According to Schwab’s client survey, 35% say they plan to review their financial plan this quarter.
About the survey: Information based on an online Schwab survey of 861 retail clients with at least $2,000 in statement equity, conducted Dec. 3 -17, 2018.
(0319-9RUW)
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
-
We inherited $250K: should we buy a second home or save for college?He wants a vacation home, but she wants a 529 plan for the kids. Who's right? The experts weigh in.
-
The $300,000 Social Security Decision You Could Get WrongDeciding when to claim Social Security is a complex, high-stakes decision that shouldn't be based on fear or simple break-even math.
-
4 Ways Washington Could Put Your Retirement at RiskLegislative changes, such as shifting tax brackets or altering retirement account rules, could affect your nest egg, so it'd be prudent to prepare. Here's how.
-
I'm a Financial Adviser: This Is the $300,000 Social Security Decision Many People Get Wrong
Deciding when to claim Social Security is a complex, high-stakes decision that shouldn't be based on fear or simple break-even math.
-
4 Ways Washington Could Put Your Retirement at Risk (and How to Prepare)
Legislative changes, such as shifting tax brackets or altering retirement account rules, could affect your nest egg, so it'd be prudent to prepare. Here's how.
-
2026's Tax Trifecta: The Rural OZ Bonus and Your Month-by-Month Execution CalendarReal estate investors can triple their tax step-up with rural opportunity zones this year. This month-by-month action plan will ensure you meet the deadline.
-
Is Your Retirement Plan Built for 2026 — or Stuck in 2006?It's time to move away from the 4% rule and the 60/40 portfolio to an adaptable, tax-diversified strategy focused on reliable income and longevity.
-
Filed for Social Security Too Soon? 2 Ways to Get a Do-OverIf you've claimed Social Security too soon, two SSA rules allow a do-over. But be warned: Using them clumsily can lead to surprise repayments or lost benefits.
-
Have You Aligned Your Tax Strategy With These 5 OBBBA Changes?Individuals and businesses should work closely with their financial advisers to refine tax strategies this season in light of these five OBBBA changes.
-
6 Key Ways to Plan for Financial Success in 2026 (and Avoid a Portfolio 'Death Spiral')Use last year's tax data to help guide you as you consider this year's taxes, asset allocation and sources of the regular income you'll need in retirement.
-
A Financial Plan Is a Living Document: Is Yours Still Breathing?If you've made a financial plan, congratulations, but have you reviewed it recently? Here are six reasons why your plan needs regular TLC.
