From this fall’s narrowly averted government debt default, to the Fed’s hints that it might roll back the bond-buying stimulus program, to the lingering uncertainty that plagues a recovering economy, it comes as no surprise that many investors feel spooked by the market.
But while it’s true that the market is volatile — as evidenced by the CBOE Volatility Index, a.k.a. the “investor fear gauge,” — these ups and downs are simply part and parcel of investing. In the short-term, markets will trend up and they will trend down, and questioning your investment strategies with each shift simply isn’t a viable or profitable strategy. Instead of reacting to each movement, cultivate a long-term perspective. These 6 tips show you how.
- Investigate your investment fears. A bit of navel-gazing – or self-psycho-analysis, if you prefer, will help you identify exactly which component is causing your unease. Are you afraid of not being able to retire the way you want? Worried about not being able to maintain your desired lifestyle? Or are you simply afraid of market volatility – or is the unknown itself keeping you awake at night? Once you’ve determined from whence your anxiety flows, you can take steps to calm your mind and ease your fears. One of the best ways is tuning out the constant flow of panicky, doomsday headlines churned out by the financial media, pundits and politicians. Remember, not only do these “experts” not possess a crystal ball that accurately predicts the markets’ future, in my opinion they also don’t have your financial best interests at heart: Rather, their focus lies in garnering attention and high ratings.
- Accept the fact that volatility exists – with all investment vehicles. In fact, the sooner you realize this, the better you’ll feel. A wide range of growth opportunities may exist for the long-term investor; attempts to time or beat the market usually don’t work, especially when done as knee-jerk or emotional reactions to volatility. Instead, accept that volatility is inevitable and realize that corrections are simply part of the investment process. Over time, the markets have shown to be resilient.
- Hold to the course. The market may be moving, but that shouldn’t sway your commitment to hold steadily to your long-term financial plan. In fact, having a plan or an investment policy statement will help you stay grounded and improve your financial confidence. While you don’t want to let your emotions get in the way of proper planning – i.e., obsessively checking your portfolio and the financial news for every drop or rise – you also don’t want to stick your head in the sand. Be sure to review your plan quarterly.
- Use direct debit to help you stick to your long-term plan. Take advantage of modern technology and set up a monthly direct deposit or debit. Not only does this make it easier on you, automatic debits will help you hold steady to your financial plan and, over time, help you work towards your financial goals.
- Obtain an education about the time value of money (TVM). In a nutshell, money that’s in-hand today is more valuable than the same amount of money in the future, due to its potential to earn interest. Keep the principle of TVM in mind when you’re figuring out how much money you’ll need to maintain a comfortable lifestyle. Knowing what you’ll need provides you with both a basis for your long-term plan and financial confidence.
- Learn about the differences and advantage of the many complex investment vehicles When it comes to investing, you have many options available that will help you deal with market volatility. Some plans even thrive in volatile market conditions. Educate and inform yourself as to your options, and don’t be afraid to ask your financial planner for advice.
Post Excerpt
Market volatility got you spooked? These 6 practical strategies for volatile markets will help calm your fears.
Source http://www.marketwatch.com/investing/index/vix
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA www.finra.org / SIPC www.sipc.org
The CBOE Volatility Index® (VIX®) is meant to be forward looking, showing the market’s expectation of 30-day volatility in either direction, and is considered by many to be a barometer of investor sentiment and market volatility, commonly referred to as “Investor Fear Gauge”. 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.