7 Tips To Help You Navigate the Volatile Market

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After a surging bull market following the coronavirus market bottom in early 2020, investors have suffered mightily thus far in 2022. As of Oct. 23, 2022, the S&P 500 market index was still down about 20% year-to-date, after bouncing slightly from its yearly low.

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Skyrocketing inflation – along with the Fed’s aggressive rate-hike campaign to contain it – have been the primary culprits, but so too have been soaring valuations and fear of an oncoming recession. With so much uncertainty in the air, volatility is likely to continue for the foreseeable future. So, what should investors do to make it through? Here are some tips.

Focus On Your Long-Term Goals Rather Than Short-Term Fluctuations in Your Portfolio

The painful reality is that the stock market is always potentially volatile over the short run. Although there are times when the market trades relatively flat, those are often just temporary pauses between big moves up or down.

This can be tough emotionally for any investor, but it can be particularly hard on newer investors, who aren’t used to going through violent swings, to older investors, who may see their nest egg drain away before their eyes. But if you trade based on your emotions, you’re much more likely to sell out at market lows and buy back in at market highs. If you can take a step back from the short-term, day-to-day noise of the market, the longer-term trend is much more smooth – and the long-term trend is up.

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The stock market has never failed to come back from a bear market and set a new all-time high, and while past performance is not a guarantee of future results, that’s a remarkable long-term track record. Focusing on your long-term goals rather than short-term fluctuations is a good recipe for staying in the market and making it through near-term volatility.

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Don’t Try To Time the Market

Timing the stock market has proven to be a horrible way to make money for all but an incredibly few lucky investors. While you may succeed over the short run, just like gambling in a Las Vegas casino, the longer you play, the more likely the odds will catch up with you and you will end up giving back all of your short-term gains, and then some.

Rather than trying to outsmart the market, betting on its long-term success and track record is a better wealth-building strategy. Remember, if you take a 50% loss on your short-term trades, you’ll need to earn 100% on your next ones simply to break even. That’s a tough way to reach your long-term investment objectives.

Stay Diversified

One way to minimize the pain of a volatile stock market is to maintain a diversified portfolio that matches your investment objectives and risk tolerance. Although a diversified portfolio can’t prevent losses, it can reduce risk because all of your assets won’t be moving in lockstep. In other words, while some of your investments may be falling in value, others may be rising – or at least falling less – which can reduce the daily fluctuation of your overall portfolio. This may also help prevent you from panic selling at market lows, which is a key to long-term wealth building.

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Don’t Give Into Investing FOMO

One of the worst ways to invest is to chase highflying momentum stocks that you know little about other than that they were touted on an online message board. This “meme stock” phenomenon has gripped the stock market over the past few years and has sent stocks like GameStop up an incredible 400% in a single week. But while these types of moves are widely reported in the press, it isn’t often that you hear about the rest of the story, when stocks like that drop 50% or more in a matter of days. Often, investors trying to pile into these types of stocks for fear of missing out get burned, especially in volatile markets.

Include Some ‘Safe’ Investments in Your Portfolio

There’s nothing wrong with having a portion of your portfolio in safer investments, even if you are comfortable with a high level of risk. Lower-risk investments may provide you with a lower potential long-term return, but they often rise – or hold their value better – when the stock market is tanking. Since one of the biggest contributors to long-term investment success is time in the market, having a lower-volatility portfolio may actually provide you with higher returns in the end simply by keeping you invested during rough times in the market. 

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Keep an Eye on Fed Rate Hikes

The Fed has embarked on an aggressive campaign of rate hikes in 2022 to combat inflation. Although predictions are all over the map, any surprises can send the market into another short-term tailspin. While it’s certainly a volatile time to be investing in the market, any short-term selloffs can turn into long-term opportunities if you’re able to pour any additional money into your investments. Try to think of pullbacks as chances to buy more when shares are lower and it may help you deal with the volatility.

Work With an Advisor

One of the best things about working with a financial advisor is that you have someone to “hold your hand” during times of volatility. A good advisor can serve as a rational source to help you deal with the emotions that all investors feel during a volatile market. Your advisor should remind you of your long-term investment objectives and help you remove emotion from your decisions, which can be hard to do from home while watching the financial news. 

Working with an advisor also gives you a fresh set of eyes looking at your portfolio. From the outside looking in, an objective advisor can make suggestions as to which stocks you might want to buy more of and which ones may have deeper problems than simply a market selloff. 

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Jaime Catmull and Gabrielle Olya contributed to the reporting for this article.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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