How can you cope with market volatility?
March 19, 2022
These are unsettling times for investors. Even before the geopolitical crisis involving Russia and Ukraine, the financial markets were facing headwinds due to higher inflation, the anticipation of rising interest rates and the continuing effects of the pandemic. As an individual investor, should you take some type of action?
It’s helpful to put today’s headlines in perspective. While the Federal Reserve probably will raise interest rates, they are doing so from a point where these rates were at or near historic lows, so the new, higher rates may not drastically deter businesses from borrowing to expand their operations. Also, higher interest rates can be good for savers, who can earn more on their savings. As for inflation, many economists expect it to cool down in the second half of 2022 as supply chain bottlenecks start to clear. And the pandemic’s effects, both on our health and on our daily lives, may be fading, though, of course, we all should be cautious when it comes to making predictions about COVID-19.
The Ukraine situation is one more unpredictable event – and one thing that financial markets dislike is uncertainty. Russia is one of the world’s largest oil producers, so a conflict that could affect oil prices can have a ripple effect on many market sectors. Until the state of affairs in Ukraine calms down, market volatility may continue.
Even in this context of uncertainty, though, investors shouldn’t lose sight of other factors that can affect the investment climate. The U.S. economy has been growing at a fast clip, and corporate earnings – usually a key driver of stock prices – have also been strong.
In any case, instead of reacting to external events – negative or positive – you’ll help yourself by pursuing an investment strategy based on your goals and risk tolerance. Sticking to that strategy will be easier if you follow these steps:
• Take a break from checking your statements. When the market goes through a rough patch, you may find yourself constantly check on how your portfolio is doing. But this can cause stress and lead you to make unwise decisions. If you don’t need this money right now, take a break from looking at your investment statements.
• Give yourself time to make investment moves. See if you can wait a certain amount of time – a day, a night or a weekend – before making a significant investment move. This delay can give you time for strong emotions to cool and help you consider whether your decision is in your best interest.
• Take steps to protect your long-term investments. If you don’t really need the money right away, you shouldn’t have to worry excessively over the short-term movements of the financial markets. To avoid tapping into your long-term investments, try to build an emergency fund containing several months’ worth of living expenses, with the money kept in a low-risk, easily accessible account.
• Get some help. When you’re facing the ups and downs in the markets, you can benefit from some assistance. A financial advisor can discuss your concerns and illustrate some scenarios that can result if you make certain moves – thereby helping you make better informed decisions.
We’re living in challenging days. But instead of agonizing over things you can’t control, concentrate on those that you can – such as making investment choices appropriate for your needs and capable of helping you meet your goals.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones. Member SIPC.