When the market becomes unpredictable, it’s easy to feel anxious, especially after a week like we’ve just had. On Monday, August 5th, investors woke up to a global market sell-off, starting in Japan and rolling over to U.S. markets with losses between 2% and 3% across major indices. The return of volatility can be unnerving, but it doesn’t have to derail your investment strategy. Here are nine key strategies to help you navigate these choppy waters.
It’s essential to stay updated on market conditions, but be cautious of falling into the trap of information overload. Watching every news outlet and scouring the internet can lead to “analysis paralysis,” where too much information prevents you from making decisions. Instead, choose a few reliable sources and stick with them. You don’t need to be an expert—just informed enough to make sound decisions without letting fear drive you.
Diversification is your best defense against market swings. If your entire portfolio moves in the same direction, whether up or down, you might not be diversified enough. Spread your investments across different asset classes—stocks, bonds, real estate, and commodities. This mix can help cushion the blow when one sector takes a hit, like we saw with the recent tech stock decline.
It’s tempting to abandon your strategy during volatile times, but sticking to your investment plan is crucial. If your goals and risk tolerance haven’t changed, your strategy shouldn’t either. However, if there’s been a significant change in your life—such as retirement, a new job, or a loss in the family—review your plan with a financial advisor and make adjustments as needed.
In turbulent times, it’s more important than ever to own high-quality investments. Companies with strong management, solid balance sheets, and a history of weathering economic downturns are better positioned to survive market volatility. While chasing the latest hot stock might seem appealing, investing in established companies with proven track records is usually a safer bet.
Having an emergency fund—typically 3 to 6 months of living expenses—gives you a safety net, so you don’t have to sell investments at a loss during a market downturn. Keep this fund in a safe, liquid account like a money market or savings account. Remember, your emergency fund is separate from your investment accounts and should be easily accessible.
Dollar-cost averaging involves regularly investing a fixed amount of money, regardless of market conditions. This strategy helps you avoid the pitfalls of trying to time the market. By spreading your investments over time, you can potentially lower your average cost per share and reduce the impact of market volatility on your portfolio.
Over time, the performance of different assets will cause your portfolio to drift from its original allocation. Regularly rebalancing your portfolio ensures that you maintain your desired level of risk. Whether you do this quarterly, semi-annually, or annually, the key is to keep your portfolio aligned with your long-term goals.
Emotions can lead to impulsive decisions that might harm your portfolio. It’s natural to feel anxious during volatile markets, but try to resist the urge to make hasty moves. Instead, take a step back, review your long-term plan, and consult with your financial advisor before making any significant changes.
If managing your investments becomes overwhelming or you’re unsure how to proceed, consider seeking professional help. A financial advisor can offer an objective perspective, helping you stay on track and make informed decisions that align with your goals.
Volatility is a natural part of investing, and while it can be unsettling, it doesn’t have to throw you off course. By staying informed, diversifying, and sticking to your plan, you can navigate these market fluctuations with confidence. Remember, it’s not about avoiding volatility—it’s about managing it.
As always, our team at Sanchez Wealth Management can help you in making these decisions. We also have our team of real estate, mortgage and legal professionals ready to help you.