Navigating Through Volatile Markets
Updated: Sep 1
By Jennifer Osgood, President, Wagner Wealth Management
Volatile markets, while not unusual, can cause uneasiness for many investors. The ability to prepare and react within market swings is key to keeping your cool and protecting your portfolio.
By consulting historical data, trends, and prior successes, you can form a plan to withstand market volatility. With the right strategy and mindset, you can minimize the effect of these swings and help your portfolio grow in the future.
While there is no shortage of predictions regarding the market’s direction, future outcomes are ultimately unknown. Historically, returns are realized if you trust your portfolio over time. For example, the S&P 500 has returned 10.22% on average annually since its inception. While that return is enticing to many investors, the S&P’s average comes from a large pool of years that include substantial growths and losses. Expecting consistent annual 10% returns is unrealistic, but knowing that number is the average over time shows the value of keeping your money invested for the long term. Indeed, investing should be considered a long-term activity.
Expecting volatility can help you stay the course. It is likely that through a 50-year investment period, you will see around 14 “bearish” periods. Do not be alarmed when one arises; it is nothing unusual.
Use Reason, Not Emotion:
When the market is uncertain and portfolios drop, many feel pressured to sell right away and cut their losses. Instead of acting emotionally, use reason when making financial decisions. These periods are often the worst times to get out of the market. On average, a bear period will see stocks lose 34% in value, while a bull period experiences a gain of 114%. If you have created a strong portfolio, then rational decision-making will lead you to trust your positions into a future Bull market. Although there is excellent value in patience, this does not mean your investments must stay the same during volatility. Each period of volatility can be different due to politics, interest rates, industry risk, and international risk. One strategy is to analyze these factors and identify which investments will minimize risk and limit losses. Note that during some periods, it is very challenging to eliminate losses. These periods of extreme market decline may mean your best strategy would be to focus on limiting losses. Eventually, you should see your portfolio balance out. It just takes time.
Capitalize on Discounted Securities:
During a market dip, many high-valued companies may see their stock prices drop. Some investors, acting out of fear, emotion, or misguided advice, may choose to sell their shares during this dip. It is during this time that investors with an eye on long-term performance can take advantage of the situation. Consistently well-performing companies with great track records and long-term plans are poised to bounce back over time. Investing in these companies at a discount gives you an opportunity to not only weather the storm of the market, but come out of it with an even stronger portfolio than before.
Another key to withstanding volatile markets is a properly diversified portfolio. If you enter a market dip with most of your investments in a single industry, your risk mirrors that of the industry, rather than the market average. A diversified portfolio holds many different securities varying in size, industry, and country. Diversification provides versatility and allows investors to make strategic changes to mitigate volatility. A diversified portfolio traditionally delivers more balanced returns and maintains investors’ confidence during times of market volatility.
It’s not unusual to be concerned by periods of market volatility. But in the end, you must remember that market volatility is a natural part of investing. Working with a wealth management team can help ensure that your portfolio is positioned to withstand typical market volatility. A trusted wealth advisor will understand your current financial situation, your goals for the future, and can advise you how to best stay the course. Throughout your investing journey, these professionals bring their experienced mindset and valuable knowledge to you so you can make informed and confident decisions.
Jennifer Osgood is the president of Wagner Wealth Management, which has offices in Greenville, Anderson, and Oconee counties. Call them at 864-236-4706 or visit www.wagnerwealthmanagement.com to learn more about the firm.
Securities offered through Arkadios Capital. Member FINRA/SIPC. Advisory services through Wagner Wealth Management Advisors, LLC. Arkadios Capital and Wagner Wealth Management Advisors, LLC, are not affiliated through any ownership.