Strategies for Investors in a Volatile Market

During volatile times, many investors get agitated and begin to question their fundamental investment decisions and choices. This is especially true for those investors who monitor their portfolios daily and can be tempted to pull out of the market and wait on the sidelines until it seems safe to dive back in. One thing that can be helpful is to understand that equity market volatility is part of the investment experience and is therefore inevitable. Equity markets can always move up and down, especially over the short-term. Some suggest that the only certainties in life are death, taxes and market volatility.

Trying to time the market can be extremely difficult. One solution is to always understand your personal situation. Try to plan for your equity investments to maintain a long-term horizon and ignore the short-term fluctuations. To help make your investment decisions less emotional and more focused it is helpful to understand volatility.  If the daily swings in the stock market seem too chaotic, remember these movements are near impossible to fully predict. For many investors there is no reason to even subject themselves to daily market headlines. If you have a long-term investment horizon for your equity holdings of at least five years, chances are the current volatility will pass – possibly in a couple of weeks, months or in at least a couple of years.

Try to keep things in perspective. Market pullbacks (defined typically as between 5 and 10%), corrections (defined as 10 to 20%) and even bear markets (defined as 20% or more) are a normal part of the stock market cycle. According to Guggenheim, since 1945, the S&P 500 has declined between 5% and 10% 78 different times. The average time it took to recover to its previous highs was only about one month.