Strategies for Investors During Market Volatility
In 2020 we find ourselves in a unique moment. But this isn't the only time the market has been affected in this way. Here's what we have learned at Apex regarding investing during market volatility from past markets that we can apply to today's market.
Understand your personal situation. You should consider planning your equity investments to maintain a long-term horizon. It could be best if you make your investment decisions on a non-emotional basis. 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 yourself to daily market headlines. If you have long-term investment outlook of at least five years, then any short-term volatility could pass before your time horizon.
Corrections are a part of the investing experience.
So, 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. Since 1950, the S&P 500 has undergone 37 separate stock market corrections of at least 10%, not including rounding (i.e., declines of 9.5% to 9.9%). Considering that there have been over 69 years since the beginning of 1950, this works out to a correction, on average, every 1.87 years. (Source: The Motley Fool 5/2020)
Remember that volatility and risk are not the same thing.
When a stock is volatile, it means that it tends to make big moves (up or down). When a stock is risky, it typically means that it can lose money (go down). In financial terms, risk is the potential permanent loss of money whereas volatility is how rapidly an investment tends to change in price. Equity investments as a category are much more volatile than a bank deposit, but that does not mean that an investor should avoid investments in equities Just because an investment is more “volatile” does not necessarily mean it is “riskier” in the long term. Investors should always discuss with their financial advisors the potential of short-term volatility affecting the daily value of their investments and plan their investments accordingly.
Investors should always put their primary focus on their own personal goals and objectives.
It is very important that you understand your situation and your financial plan. A wise strategy is to continue to proceed with caution while allocating your investments to match your risk tolerance.
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