Best Response to Volatile Markets? Stay Calm

In recent months, stocks have fallen sharply from their record highs, with one-day drops that can rightfully be called “dizzying.” As an investor, what are you to make of this volatility?

For one thing, you may find it useful to know the probable causes of the market gyrations. Most experts cite global fears about China’s economic slowdown and falling oil prices as some of the key factors behind the stock market’s volatility. It’s only natural that you might feel some trepidation over what’s been happening in the financial markets over the past few weeks. So, what should you do? Here are a few suggestions:

• Expect more of the same. Be prepared for more volatility, potentially including big drops one day followed by big gains the next. Until the factors considered responsible for the current volatility – that is, China’s slowing economy and low oil prices – have been fully absorbed into the market’s pricing mechanisms, big price swings, one way or another, are to be expected.
• Don’t panic. The headlines may look grim, but today’s newspapers are tomorrow’s recycling pile. Volatility is nothing new.
• Look for opportunities. By definition, a downturn occurs when investors sell massive amounts of stocks. However, a downturn may actually be a good time to consider buying stocks, while their price is down. Look at the most successful businesses and their products and services. If you can envision these companies still being around and thriving in ten years, you may want to consider buying their stocks at potentially lower prices.
• Diversify. If your portfolio took a particularly large hit during the downturn, it might be because your holdings are over-concentrated in stocks, especially the types of stocks that fared the worst. Review your portfolio with your financial advisor. Diversification, by itself, can’t guarantee a profit or prevent against all losses, but it can help blunt the harshest effects of volatility.
• Review your investment strategy. Unless your goals have changed, there’s no reason to revise your long-term investment strategy, even in the face of wild fluctuations in the financial markets. Still, it’s always a good idea to review your strategy at least once a year, possibly in consultation with a financial professional. You may need to make smaller-scale adjustments in response to changes in the economy, interest rates, and so on, but don’t abandon your core principles, such as maintaining a portfolio that reflects your goals, risk tolerance and time horizon.

Investing will never be either risk-free or predictable. But taking the steps described above, can help relieve some of the stress associated with volatility and help your stay on track toward your financial objectives. Past performance does not guarantee future results. Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events..

*Edward Jones does not provide tax or legal advice. Review your specific situation with your tax advisor and/or legal professional for information regarding, or issues concerning, the tax implications of making a particular investment or taking any other action.
** Insurance and annuities are offered by Edward Jones Insurance Agency (except in Quebec). In Quebec, insurance and annuities are offered by Edward Jones Insurance Agency (Quebec) Inc.

Ryan McLellan, Financial Advisor
Edward Jones Barrhaven(613) 823-3404
[email protected]