Navigating Volatility in the Stock Market
Although fluctuations in stock prices are a normal part of investing, a sharp drop in the stock market can be unsettling. These tips might help.
Remember that stocks are a long-term investment.
Stock prices tend to fluctuate more than bonds and cash investments over the short term. The stock market will be up some days and down on others - and sometimes the change can be dramatic. But over long periods of time, stocks as a group have historically provided higher returns than bonds or cash. The potential for higher returns over the long term is probably why you invested in stocks in the first place. The key words here are "long term". Because of their short-term volatility, stocks are best suited for long-term goals - say, those goals that are ten or more years away.
Find the asset allocation that is right for you.
Bonds and cash investments are less volatile than stocks, so adding them to a stock portfolio can help reduce the portfolio's overall volatility. Keep in mind, though, that bonds and cash generally have less potential for growth than stocks over the long term. So, while adding them to a stock portfolio can reduce its overall volatility, it can also reduce its overall growth potential. For this reason, it is important to choose a mix of asset types (stocks, bonds, cash, etc...) that balances your need for growth with your desire to reduce volatility.
Do not try to time the market.
Although it may be tempting to pull out of stocks as a whole in a market down-turn, this may not be your best move. No one can predict with any certainty which way the market is headed that day, week or month. If you jump out when the market is down and then fail to jump back in at the right moment, you will miss any rallies that may occur.
Copper Leaf Financial can help you choose the asset allocation that is appropriate for your financial objectives, tolerance for risk, and length of time remaining until you will need your money. We are a fee-only, fiduciary firm and we can help you by providing advice on planning for your family’s future. We develop a customized wealth management (financial) plan designed to integrate every aspect of your financial life. This is "true wealth management" - a holistic, all-encompassing approach that goes beyond just investment advice. Call us today at (802) 878-2731 to schedule a strategy session and begin building your road map to financial success.Article published in January 2017 edition of Eye on Money.