Third quarter statements are arriving in mailboxes and many investors are seeing their bottom line has dipped once again. Nobody likes volatility, and it makes some investors nervous. Here are a few tips from an article by Franklin Templeton to remember when the markets get a little bumpy.
Tune out the noise and maintain a long-term perspective. Numerous television stations, websites and social media channels are dedicated to reporting investment news 24/7. While the media provides a valuable service, they typically sensationalize bad news and offer a very short-term outlook. Put your investment plan in a longer-term perspective; ideally one that coincides with when you will need to start redeeming the money. Also, focus on how your portfolio has performed over the last 1, 3, 5 and 10 years.
Don’t watch from the side lines. When stock markets become volatile a lot of people will try to guess when the stocks will bottom out. In the meantime, they often park their money in cash and wait until they see an upward trend before re-investing; thus, missing out on huge opportunities. Stated in the article by Franklin Templeton, before going to cash investors should consider that after analyzing 29 bear markets since 1929, a fully invested equity portfolio returned 37.1% (on average) in the 12 months that followed the end of a bear market. If an investor sat in cash for the first six months over the same time periods, they would have only generated a return of 7.6% (on average). Moving to cash and missing out on these opportunities can take a huge bite out of your returns.
Use a Dollar-Cost Averaging Strategy. Everyone knows buy-low sell-high, but many investors find it difficult to muster up the courage to invest during a volatile market. The strategy known as Dollar-Cost Averaging can help ease the anxiety of wondering “is this really the right time to buy?”. Simply put, the strategy means committing a fixed amount of money to be invested at regular intervals. Many investors already achieve this by having money withdrawn from their bank account on a weekly/monthly basis and investing it directly into a predetermined portfolio. By doing this, you buy more shares when prices are low and fewer shares when prices are high. Over time, your average cost per share purchased is almost always less than your average market price per share at the end of the year.
Review your portfolio holdings. If you are nervous, now might be a good time to review your portfolio and re-balance if necessary. The weightings in different sectors may have shifted over time as one investment may have performed better or worse than others. Review your portfolio to ensure you are still properly diversified and your asset mix is still suitable for your goals and risk tolerance.
Stick to your plan. There is no real secret to managing volatility; markets will continue to go up and down. Most people know the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. However, sticking to your plan can be difficult when markets fluctuate. When put to the test, going against your beliefs can divert you from your long-term goals and lead you to making short-term, often regrettable decisions.
If you have any concerns regarding your portfolio or questions about the recent market volatility, please don’t hesitate to give us a call.
Have a great weekend,
Tracey and Paige
Sources:
https://www.franklintempleton.com/forms-literature/download/GOF-FL5VL
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