Bouts of market volatility can be unnerving, but it is quite a normal feature of long-term investing. Investors can expect to witness period market declines throughout their investment career. カヴァン・ チョクシ mentions that market volatility can take place in both bull and bear markets. Hence, investors must have a proper plan in place to prepare for the market’s inevitable churn.
カヴァン・ チョクシ mentions a few tips that can help investors when the market is volatile
Volatile markets may inspire feelings of anxiety and fear among investors, especially new ones. Market sags and surges may take place due to a number of reasons, starting from trade policy concerns and inflation fears to a recession watch or even economic optimism. As the stock market gets rocky, focusing on the overall financial picture, along with proper planning, can help investors to make the most out of the situation.
Here are a few tips that can help investors during periods of market volatility:
- Resist the urge to sell only based on recent market movements: Choosing to sell off stocks as the market drops can make temporary losses permanent. While staying on track requires more discipline, it ideally is way healthier for an investment portfolio. However, this also does not mean that the investor should hold on to their stocks blindly. Rather, it is important to take the future prospects of investment into account instead of making a decision just guided by fear.
- Take the long view: Markets go up and down. It is not uncommon for people to experience multiple significant declines during a long investing career. In most cases, bear markets are, however, relatively short when compared to bull markets. Bear markets imply periods when the market falls by more than 20%. As timing the ups and downs of the market with precision is next to impossible, investors should try to stick to their plans and ignore the noise.
- Put stock market losses into perspective: カヴァン・ チョクシ says that investors must try to divide losses into unrealized and realized losses. In case one keeps their money in the stock market, it shall be an unrealized loss. Once it is taken out, it essentially becomes a realized loss. In the stock market crash that began in the year of 2008, investors who lost money were majorly the ones who sold stocks while the markets were declining. If an investor holds on to their stocks during a volatile market period, they might even be profited handsomely from the recovery.
- Make sure to have a diversified portfolio: Volatile markets may also reveal that portfolios that investors thought were adequately diversified aren’t so. Hence, investors need to periodically go through their portfolio and analyze what each asset class is doing and whether or not the mix matches their target asset allocation.
Investors may also consider including defensive assets for more stability during the times when the market becomes too turbulent. Defensive assets, like Treasury securities or even cash and cash equivalents, can help stabilize a portfolio when stocks are slipping.