Managing Through Market Volatility
Posted on April 4, 2025
Fluctuations in the stock market are an unavoidable aspect of investing. The S&P 500 has recently entered “correction” territory (declines greater than 10%).
These corrections, or indeed volatility in general, are not at all unusual, and understanding how to navigate these periods is crucial for safeguarding and growing your assets. Below, we explore some factors that contribute to market volatility.
• Economic Indicators: Reports on inflation, employment figures, consumer sentiment, and gross domestic product (GDP) influence investor confidence as well as expectations about future growth and the usual counterbalance to that growth, interest rates.
• Political/Geopolitical Events: Political or policy transitions, trade tensions, and conflicts can introduce uncertainty into currency, commodity, debt, and equity markets.
• Corporate Developments: Company earnings reports, leadership changes, and product developments can trigger sharp stock price movements.
• Investor Sentiment: The market is comprised of individuals whose behavior can be guided by emotions. Panic-driven selling or overly enthusiastic buying can exaggerate these stock price swings.
• Natural Disasters and Health Crises: Catastrophic events, such as hurricanes or pandemics, can disrupt supply chains, hinder economic growth, and amplify uncertainty.
Some investors see volatility as an opportunity, while for others, it’s important to mitigate risk. Here are some veteran approaches to effectively managing volatility:
Maintain a Long-Term Perspective
Short-term market swings generally have little impact on long-term financial trends. Remaining invested over extended periods helps smooth out temporary downturns and ensures participation in eventual recoveries. Historically, despite periods of volatility, the S&P 500 has delivered an average annual return of approximately 9.8% since its inception in 1926, underscoring how time invested is far greater than attempting to time the market.
Diversification
Spreading investments across different asset classes and sectors reduces overall risk and minimizes the impact of poor performance by any single position. For instance, during periods of stock market instability, fixed income can be a welcome ballast for your overall portfolio, and in fact rise in value during periods of tumult, most recently during the banking crisis of March 2023, COVID in 2020, the Euro crisis of 2011/2012, and ironically, the U.S.’s own debt downgrade in 2011.
Capitalize on Market Opportunities
Market downturns frequently present chances to acquire quality assets at lower prices – per Warren Buffet’s wisdom and practice, “being greedy when others are fearful.” For long-term investors, buying during these periods can yield substantial gains when the market rebounds. Additionally, selling underperforming investments to realize capital losses can help offset taxable gains.
Rebalance Your Portfolio
As markets fluctuate, asset allocations shift. Volatile times provide a chance to reassess your portfolio and ensure it aligns with your risk tolerance and financial goals.
Control Emotional Reactions
Market turbulence often incites fear, leading to rash decisions like panic-selling, which can lock in losses and disrupt a sound investment strategy. Remember that volatility is a natural aspect of investing, and historical patterns indicate that markets tend to recover. Investors who remain patient and committed to their long-term strategies are typically rewarded.
Consult an Investment Professional
Well-informed investors make better decisions. By understanding market trends and the causes and potential outcomes of volatility, you can approach investing with greater clarity, purpose, and confidence. Navigating market uncertainty can be complex, but professional guidance can help. If you are considering revising your financial plan, our team is available to help you every step of the way. Contact us to develop a personalized investment strategy that can help you feel more confident regardless of the market conditions.
LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. Not FDIC Insured | No Guarantee | May Lose Value
Ryan Brooker
Portfolio Management
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