6 Investor Tips for Handling Wild Market Swings

Whether you are a relatively new investor or you've been at for a while, the recent market swings have not been for the faint of heart. Yes, it's common knowledge that what goes up, must come down. However, even if you view market volatility as a regular occurrence, it can be tough to handle when you're watching your account balance drop.

While there's no fool-proof way to handle the ups and downs of the stock market, the following common-sense investor tips can help.

6 Investor Tips to Help You Stay the Course

  • Don't put your eggs all in one basket
  • Focus on the big picture
  • Look before you leap
  • There is a silver lining to market volatility if you look for it
  • Temper your optimism
  • Don't stick your head in the sand

Investor Tip #1: Don't put your eggs all in one basket

Diversifying your investment portfolio is one of the key ways you can handle market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of different types of investments such as stocks, bonds, and cash alternatives, has the potential to help manage your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can't guarantee a profit or eliminate the possibility of market loss.

One way to diversify your portfolio is through asset allocation. Asset allocation involves identifying the asset classes that are appropriate for you and allocating a certain percentage of your investment dollars to each category (e.g., 70% stocks, 20% bonds, 10% cash and equivalents). You'll want a strategy that is tailored to your unique circumstances.

Investor Tip #2: Focus on the big picture

As the markets go up and down, it's easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle if you still have years to invest, don't overestimate the effect of short-term price fluctuations on your portfolio.

Investor Tip #3: Look before you leap

When the market goes down, and investment losses pile up, you may feel tempted to pull out of the stock market altogether and look for less volatile investments. The small returns that typically accompany low-risk investments may seem downright attractive when more risky investments are posting negative returns.


For instance, putting a higher percentage of your money into investments that offer safety of principal and liquidity may be the right strategy for you. This may be the case if your investment goals are short-term or if a long-term goal, such as retirement, has now become an immediate goal. But if you still have years to invest, keep in mind that although past performance is no guarantee of future results, stocks have historically outperformed stable value investments over time. If you move most or all of your investment dollars into conservative investments, you've not only locked in any losses you might have, but you've also sacrificed the potential for higher returns.

Investor Tip #4: There is a silver lining to market volatility if you look for it


One of the ways you can do this is by using dollar-cost averaging. With dollar-cost averaging, you don't try to "time the market" by buying shares at the moment when the price is lowest. Better yet, you don't worry about the price at all. Instead, you invest the same amount of money at regular intervals over time. When the price is higher, you buy fewer shares of stock. When the price is lower, the same dollar amount will buy you more shares.

Related Reading: Principles of Sound Investing: Consistency

Remember that dollar-cost averaging can't guarantee you a profit or protect against a loss. However, over time, a regular fixed dollar investment may result in an average price per share that's lower than the average market price. That assumes that you continue to invest in all types of markets.

One of the most well-known examples of dollar cost averaging in action is a workplace savings plan, such as a 401(k) plan.  The same amount is deducted from each paycheck and invested through the account. Keep in mind that since dollar cost averaging involves continuous investment in securities regardless of fluctuating price levels of such securities, you should consider your financial ability to make ongoing purchases.

Related Reading: 3 Benefits of a Self-Directed 401(k) or 403(b)

Investor Tip #5: Temper your optimism


Investor Tip #6: Don't stick your head in the sand


If you don't currently have a personalized investment strategy in place or you need to revisit yours, reach out to us for a complimentary consultation.


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