Many investors are familiar with the emotional impact that often comes with market volatility. When stock markets swing in extreme directions or change suddenly, investors can feel anxious and make decisions based on emotion that can hurt their pocket. This is a natural reaction when the markets are volatile, especially when the future seems uncertain and negative news headlines are abundant.

Instead of panicking and immediately changing your investment strategy, it’s important to keep perspective and maintain your focus on the long-term, no matter how rocky the markets may become. When stock market volatility strikes, we recommend these five strategies to help you maintain smooth sailing.

1) Don’t Panic and Maintain Your Original Investment Strategy

 Investing in the stock markets can produce a variety of emotions for any investor. When all you hear on the news is doom and gloom, the best thing you can do is work with your financial advisor and trust in the plan you created together. Also, remind yourself of investment statistics to keep emotions in check. For example, long-term investments produce solid returns over 20–30 year periods, despite experiencing market volatility during that time frame.

2) Keep an Active Approach When It Comes to Risk Management

Depending on age, personality, short-term, and long-term financial goals, each investor has their own risk tolerance. Whether you have a high or low risk tolerance, be sure to maintain an active approach.  If you become uncomfortable with your strategy, risk tolerance assessment, or investment portfolio, discuss that with your financial advisor before making any rash decisions.

3) Have an Investment Policy Statement

If you want to stay on track with your investments, regardless of what the markets are doing, you should have an Investment Policy Statement (IPS). An IPS is a document drafted between you and your financial advisor that outlines general rules for meeting your investment objectives. It includes criteria for monitoring performance, addressing risk, and communication between you and your advisor. Your IPS should also include a provision explaining when you should rebalance your portfolio.

If you don’t have an IPS, you could be leaving your investments to speculation. Without written objectives and guidelines, your investments are subject to the whims of your emotions, and how you “feel” you should be investing.

4) Maintain a Diversified Portfolio

Do you want to have a proven cushion that will protect you when markets take dramatic swings? Work with your financial advisor to create and maintain a diversified portfolio. A properly diversified portfolio should include a variety of large, mid, and small cap investments, both domestic and foreign. It should also have a variety of industries and investment styles.

5) Don’t Rely on the Financial Media 

When emotions are running high, it is easy to get sucked into the financial media’s message of doom and gloom, with so-called “experts” inciting fear and panic. Remember, no one has a crystal ball when it comes to the future of the markets, and even scrutinizing past events cannot fully dictate the market’s future. Reach out to your financial advisor, calmly review your current strategy, and don’t focus too much on stock market news.

Traditionally, most financial advisors tell you to hold onto your investments when market volatility hits, rather than adjusting your strategy. Historically, investors who stay the course and disregard market volatility typically reap the returns later on. That said, each investor needs a personalized investment strategy, so it’s always best to discuss everything fully with a financial advisor. 

If you’re concerned about recent volatility and have not heard from your current advisor, contact us to schedule a complimentary second opinion. We can review your current investment strategy, portfolio, risk tolerance, and Investment Policy Statement and decide if any changes are necessary. We’re here to help.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Paragon Wealth Strategies, LLC [“Paragon”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Paragon.  Please remember that if you are a Paragon client, it remains your responsibility to advise Paragon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Paragon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Paragon’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.wealthguards.com. Please Note: Paragon does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Paragon’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Also Note: IF you are a Paragon client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

References

Assessing Your Risk Tolerance

• https://www.investor.gov/research-before-you-invest/research/assessing-your-risk-tolerance

5 Investing Do's and Don'ts To Deal With Stock Market Volatility

• By Lynnette Khalfani-Cox - https://www.ebony.com/career-finance/5-investing-dos-and-donts-to-deal-with-stock-market-volatility/