5 key principles to help you keep your emotions in check
During periods of market volatility, it can be important to remain calm and focus on your long-term goals. It can also be a good time to talk with your financial professional about a balanced and diversified portfolio. Here are some other key principles to keep in mind during volatile markets.
1. Keep market volatility in perspective
Market volatility is unavoidable and there will always be uncertainty in the markets, but consider focusing on the long-term. Understanding financial market tendencies is essential, and history often provides us with helpful lessons.
Bull markets—periods when markets are doing well—have historically run longer than bear markets, when markets are down. Consequently, those who have stayed invested have typically benefited from subsequent, often rapid rebounds. Another way to evaluate market volatility is to consider drawdowns, or the amount the market declines from its high to its low price within the year. Since 1980, U.S. equities have averaged an intra-year drawdown of about 14%.* So short-term volatility—even if dramatic and unsettling—is to be expected.
2. Choose an asset mix you’re comfortable with
A key to long-term investing and weathering the storm in volatile markets is diversifying your portfolio. Consider your risk tolerance―that is, your ability to withstand market volatility―and your long-term goals and objectives. Then, position your portfolio accordingly with the help of your financial professional. Your financial professional can help guide you and also help answer any questions you may have. Of course, diversification does not ensure a profit or protect against market loss.
3. Avoid trying to time the market—stay focused on your long-term goals
In times of market volatility, some investors attempt to move in and out of the market. This usually results in poor returns and missed opportunities. By accepting the inevitable reality of the market’s ups and downs, it is much easier to execute your long-term investment plan. History has shown the nearly impossible task of timing the market consistently. Short-term market behavior is extremely unpredictable and trying to time the market has proven harmful to one’s financial well-being.
4. Consider investing regularly to help create balance
It may not seem intuitive, but investing regularly, even in market downturns, can help reduce your overall prices at which investments are purchased. Declining markets can present buying opportunities. By investing systematically, investors can buy more shares when prices are low; fewer when prices are high. This approach also has intrinsic benefits by encouraging discipline and it may help to ease the anxiety of daily market fluctuations. Of course, systematic investing does not ensure a profit or protect against market loss.
5. Talk with your financial professional
Focusing on the big picture can be difficult during volatile markets. The good news is that you don’t have to go it alone. The best action step you can take may be to talk to or meet with your financial professional. He or she can help answer questions you may have about market volatility and help you make decisions about the best options for your individual circumstances and your financial future.
*FactSet, Standard & Poor’s, J.P. Morgan Asset Management, J.P. Morgan Asset Management Guide to the Markets—U.S., 3Q 2024.