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.
Sign up for Kiplinger’s Free E-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.
-
How to Rank Your Financial PrioritiesCircumstances are different for everyone, but this adviser with 20-plus years of experience shares some insights on getting your financial priorities in order.
-
Can You Define Baby Boomers? Look at Trump and HarrisTrump and Harris are bookends of the sprawling Baby Boomer generation, which spans 18 years. No wonder they have different world views.
-
How to Rank Your Financial Priorities
Circumstances are different for everyone, but this adviser with 20-plus years of experience shares some insights on getting your financial priorities in order.
-
When Does a Nest Egg Become a Ticking Tax Bomb?Retirement savers with big bucks in traditional IRAs and pretax 401(k)s could face huge tax bills when RMDs kick in. One potential solution? A Roth 401(k).
-
Medicare or Medicare Advantage: Which Is Right for You?From overall costs to availability of care, here's what to know about the differences between traditional Medicare and Medicare Advantage plans.
-
Wealth Is More Than Just Your Money: How to Manage It AllIn addition to handling your financial wealth, consider ways to manage your non-financial assets: health, knowledge, time and relationships.
-
You're 60 Years Old With $1 Million Saved: Can You Retire?The answer depends on several factors. The key is to create a plan that combines all aspects of retirement — income, taxes, health care and legacy planning.
-
Are You a Danger When You Drive?You might be shaking your head no, but read on for the five things that most of us have at some point done, or are doing, that could cause an accident.
-
Come as You Are: Wealth Management for Gen XGen X is stuck in the middle of kids and aging parents, but retirement's not far off. Time to prioritize, with help from Nirvana, The Eagles and David Bowie.
-
UTMA: A Flexible Alternative for Education Expenses and MoreThis custodial account can be used to pay for anything once the beneficiary is considered an adult in their state. There are some considerations, though.
