Stay the Course: Riding out Stock Market Volatility

While stock market volatility is an unavoidable fact of life, we understand why anyone with money in the market may feel wary when there are big swings in the stock market. Questions about how to change asset allocation or whether to pull money out of the stock market during uncertain times are common and reasonable. Despite the temptation to divest your assets, it’s often not a beneficial long-term strategy.

“It’s important to remember that volatility is normal,” says David B. Smith, CFA, Chief Investment Officer of Rockland Trust’s Investment Management Group. “While it 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.”

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Predicting market activity with consistent accuracy can be next to impossible. In addition to politics, macroeconomical and governmental policies are only a few of the myriad factors that play into market fluctuations. Rather than constantly pivoting to account for these changes, talk to your advisor about maintaining a steady approach to investing. Portfolio diversification, smart asset allocation and downside protection strategies will help you meet your long-term goals and objectives without wavering in the face of short-term market fluctuations.

While there’s no way to avoid market volatility completely, we asked our investment experts for three reasons why you should consider staying the course during periods of volatility

1. 1. Be patient; don’t make decisions based on each turn. Watching your portfolio take a drastic hit is a tough pill to swallow, and sudden spikes in your portfolio’s value can create a false sense of security You know the saying: What goes up must (often) come down. Constantly analyzing the market’s incessant ebbs and flows won’t benefit your mental state… or, likely, your bottom line. Investing is a long game, and keeping that in mind will alleviate the day-to-day stresses of watching your money constantly grow or contract. That said, you should still actively participate in your investment strategy. Talk to your advisor about your short-term goals, long-term 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 despite any temporarily cloudy skies.
   2. Stay focused on the big picture. Investing always assumes a level of risk, but 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. Even when some years see larger losses than others, the likelihood is your investments may still make a healthy return in time. You should also consider 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, which helps maintain market stability.
   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 next few years, 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’re reconsidering 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.