What to Do When Markets are Volatile
Does the recent downturn in the market have you second guessing your investment choices? Don’t worry, you’re not alone. The volatile markets are back and most likely here to stay for 2016. What’s important though is to avoid making investment decisions based solely on emotions. Consider these practical tips:
Diversify – Simply put when you spread investments across different types of assets such as stocks, bonds and cash, you can help protect your account from the massive decline that can happen in any single investment. You can help manage the risk of your total portfolio by diversification.
Avoid chasing returns – Asset classes (i.e. US stocks, international stocks, bonds) typically rotate leading the charts and generally last years winner will not hold it’s spot the following year. Chasing returns happens when you impulsively sell an underperforming investment which locks in those losses, while buying an investment that has enjoyed a run of strong returns which could mean you are getting in at the top.
Rebalance – Portfolio rebalancing is like a tune-up for your car: it allows individuals to help keep your risk level in check and seeks to manage it. Review your account on a regular basis and consider rebalancing periodically. Your 401(k) or work sponsored plan might offer this as an automatic option.
Since the market’s future direction is impossible to predict, staying the course with a diversified portfolio appropriate for your financial tolerance and goals can be a way to pursue financial freedom with less stress.
Julia Carlson is a registered Principal with, and securities are offered through, LPL Financial. Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Asset allocation does not ensure a profit or protect against a loss.