Market downturns are a normal part of investing. While they can feel unsettling, the right strategy can help you stay focused and even uncover opportunities. Here are some smart ways to manage volatility and stay on track, that we have compiled over our decades of working with our clients:
Know Your Risk Tolerance
- Check Your Comfort Level: If recent swings have you stressed, it may be time to reassess.
- Realign with Your Goals: Adjust your portfolio to reflect your current risk profile and timeline
Diversify and Defend
- Spread Risk Across Assets: Stocks, bonds, real estate, and commodities can balance one another, so look for investments that are not correlated with each other.
- Lean Into Defensive Sectors: Healthcare, utilities, and consumer staples historically have showed to be more stable in downturns, versus more cyclical and discretionary sectors.
Stay Liquid
- Keep Cash Ready: A solid reserve gives you flexibility and protects against forced selling.
- Avoid Overleverage: Limit debt to maintain control of your investment decisions.
Stick to the Plan, But Stay Adaptive
- Use Dollar-Cost Averaging: Keep investing regularly to reduce the emotional impact of volatility.
- Avoid Panic Selling: Reacting emotionally often leads to locking in losses. It’s easy to assume the worst-case scenario is most likely—but history shows that’s rarely true.
Monitor and Adjust
- Rebalance Periodically: Ensure your allocation stays aligned with your long-term plan.
- Use Stop-Loss Orders Wisely: These can help minimize downside risk on specific holdings.
Consider Protective Tools
- Explore Hedging Options: For more advanced investors, strategies like options or market neutral type investments may be helpful. However, do not look to incorporate too many hedging tools AFTER a market downturn, as you may be capping your ability to recoup and recover.
- Limit Speculative Positions: Focus on high-quality investments during uncertain times.
Stay Informed and in the Right Frame of Mind
- Track What Matters: Watch key indicators but avoid media noise.
- Truly Focus on your Long-Term Goals: Even though things may seem unsettling at times, do not jeopardize your future by making pain go away at the present.
- Trust the Process: If done correctly, you should have done a lot of your work upfront by diversifying, so don’t feel the need to overreact when things get dicey.
- Realizing that the current time may be overwhelmingly negative, but history shows the long-term is positive: It’s easy to make a list of the problems going on and how things may get worse, but it’s harder to image how things will get better. Unexpected events brought the market lower, so why can’t the unexpected bring the market higher once more?
Bear markets can be tough but with discipline, diversification, and a long-term mindset, you can ride out the storm and come out stronger. Also, working with your financial advisor can help ensure your plan remains aligned with your goals, no matter what the markets are doing.
Blog article is for informational purposes only and should not be interpreted as investment, tax or legal advice. Dollar cost averaging does not assure a profit and does not protect against loss in a declining market. Such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue their purchases through periods of falling prices, when the value of their investments may be declining. Alternative investments are intended for qualified investors only. Alternative Investments such as derivatives, hedge funds, private equity funds, and funds of funds, are not appropriate for all investors and can result in higher return potential but also higher loss potential. These funds carry specific investor qualifications which can include high income and net-worth requirements as well as relatively high investment minimums. Alternative investments are speculative and involve a high degree of risk. Past performance is not indicative of future results. PPG- 8786686.1 (2/26)(Exp. 2/30)