Market volatility – particularly when it results in big headlines and news stories – can sometimes have you wondering about your investment portfolio.
While it’s no secret stocks can be volatile, especially in response to major domestic or world events, historical market data show that prices typically have returned to less volatile patterns over time. Here are some things to consider when the markets start making news.
Remember volatility happens: When it comes to the stock market, volatility typically refers to the size and frequency of price movements. In general, higher volatility means a wider range of potential returns and the possibility of sharp movements over short time periods. Furthermore, an analysis of market data beginning with the years just prior to the 1929 stock market crash shows that periods of volatile price movements have not been unusual.
We’ve been around since 1937, long enough to know the stock market goes through cycles, rising and falling over time – sometimes sharply. Historically, different asset classes such as stocks and bonds have fallen and risen at different times, so it is important to review and maintain a financial plan focused on the long term.
Make sure your portfolio is diversified: It is important to review your financial plan periodically. One key to good long-term financial planning is diversification, which means spreading investments across different asset classes. Doing so – generally speaking – reduces a portfolio’s vulnerability to big swings in the market.
Reassess your risk tolerance: Risk tolerance is a measure of how much volatility you’re willing to accept in your portfolio. Investors who are willing to accept more investment risk may benefit from higher returns in the good times, but they also get hit harder during the bad times. A more conservative portfolio generally means there are fewer highs but also fewer lows. If you’re losing sleep because of how you are invested, contact your Waddell & Reed financial advisor.
More information about risk tolerance is available here; information about the different types of investment risk is available here.
Stay invested. There are no guarantees if or when a market will change, of course, but Waddell & Reed believes one of the worst mistakes you can make is trying to time the market – pulling money out because of someone’s prediction can cause you to miss out on the good days as well as the bad ones.
Lastly, should you have questions about how world news or changing market conditions may impact your portfolio, please contact your Waddell & Reed financial advisor. There are a variety of events that can influence the economy – your advisor can help you create a financial plan designed to weather the market’s highs and lows.
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This information is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation.
Diversification will not ensure a profit or guarantee against a loss in a declining market. Please note that mutual funds will fluctuate in value and an investor can lose money by investing in mutual funds.
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