Stay the Course: Riding out Stock Market Volatility

While stock market volatility is an unavoidable fact of life, there’s no denying that these periods of instability can spark a sense of uneasiness among investors and a general wariness about one’s financial future. You may frequently find yourself asking; “Should I pull my money out of the stock market?” While it may seem tempting at times, divesting your assets is often not a beneficial long-term strategy.

“After years of market complacency, it can be easy to forget that volatility is normal,” says David B. Smith, CFA, Chief Investment Officer of Rockland Trust’s Investment Management Group. “While volatility can bring discomfort, it’s a necessary and unavoidable part of the investment process. A sound investment strategy can help you navigate the market’s highs and lows with confidence.”

Predicting market activity with consistent accuracy can be next to impossible. Many factors play into market fluctuations, such as macroeconomic, political, and government policies, just to name a few. Rather than constantly pivoting to account for market fluctuations, talk to your advisor about maintaining a steady approach to investing. Portfolio diversification and downside protection strategies will help you meet your long-term goals and objectives without wavering in the face of short-term market fluctuations.

With no way to avoid market volatility completely, we asked our investment experts for three reasons why you should consider staying the course.

1. Be patient; don’t make decisions based on each turn. Watching your portfolio take a drastic hit is by no means an easy pill to swallow. On the contrary, sudden spikes in your portfolio’s value can create a false sense of security, because what goes up, often does come down. Constantly analyzing the market’s incessant ebbs and flows won’t benefit your mental state -- or likely your bottom line. Understanding that investing is often a long game will alleviate the day-to-day stresses of watching your money constantly grow or contract. That said, you should still be an active participant in your investment strategy. Talk to your advisor about your short and long terms goals and risk tolerance -- and do so frequently. The more you understand your portfolio and how it’s structured, the more peace of mind you’ll have in weathering the storm. 
2. Stay focused on the big picture. While investing always assumes a level of risk, historically, staying the course has proved better results than pulling out of the market completely.  Since its inception in 1928, the S&P 500’s annual return has averaged roughly 10 percent. So even though some years saw larger losses than others, in the long run, your investments may still be making a healthy return.  Another thing to think about is compounding interest. If you were to invest just $1,000 per year, each year for 30 years, that principal investment (thanks to compounding interest) could turn into more than $100,000 using an average 6 percent annual return. And remember, you only actually invested $30,000! Lastly, there are safeguards in place to mitigate drastic equities selling, keeping the market slightly more stable.
3. Consider adjustments. If a market downturn still has you worried, consider a more conservative investment strategy. Your returns may be less, but so will your risk. Bonds and mutual funds are traditionally less volatile, so talk to your financial advisor about investing in these asset classes if you’re worried about market conditions. When it comes to your investment strategy, it’s also important to think about what stage of your life you’re in. If you’re nearing retirement age and will need to access your investments in the near future, you may prefer to invest in assets that are more likely to hold their value in the short-term. If your money has decades left in the market, you may be willing to take bigger risks, as you have more time to recoup any potential losses, but also to yield greater gains. 

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“Investing in equities will inevitably result in times when one’s portfolio has negative returns. A hallmark of a successful downside protection strategy is how quickly it recovers its value,” says Doug Butler, SVP and Research Director of Rockland Trust's Investment Management Group. “Whether you’re nearing retirement age or just entering the workforce, the Investment Management Group at Rockland Trust can help you develop an investment strategy to weather market volatility and reach your short and long-term financial goals.”

If you are rethinking your investment strategy, contact our experts in investment management, who are happy to help walk you through the options that best meet your financial needs and goals.

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