Anytime the markets are seeing red — and let’s face it, volatility has been a key theme of 2022 so far — it can feel like you need to change course. And fast. If this is your first market correction (that’s when the market drops by more than 10% from a recent high), watching the value of your investments shrink in real time can feel overwhelming. Learning how to navigate through volatile markets can put you on the path to becoming a more astute investor. Having an action plan for periods of volatility may help you make better decisions.
According to Natasha Kovacs, a Senior Planner with TD Wealth, market volatility can be disruptive not just to your portfolio, but also for your peace of mind.
“Nobody likes bad news. When I work with my clients, I make sure that their investments are on track to succeed over the long term despite any temporary setback,” says Kovacs. “Everyone should be investing according to how much risk they are comfortable with. So, whatever happens over a lifetime of investing, no one should be losing sleep about brief interludes.”
Kovacs says while the issues worrying investors may change, market volatility is something we have seen many times. Seasoned investors will be buying stocks at bargain prices because they know this downturn is temporary and better days will be back sooner or later.
Of course, seeing investments drop suddenly can be stressful. Instead of getting angry and ditching a carefully structured investment plan, she offers some calming action items that may help you to weather a temporary storm.
Don’t panic Market analysts and behavioural scientists agree: Doing something rash in the heat of the moment can bring far worse consequences. An example of a knee-jerk reaction would be to sell those once-favorite stocks or investments if they are temporarily in the red. Kovacs says that leaving the market only means you could be left standing on the sidelines when the market reverses again. Studies prove that jumping in and out of the market can have a dreadful impact on your portfolio over time.
Take a breather When there’s bad news, everyone wants to shout about it, but you don’t have to listen. “Doomscrolling” through social media and searching for the most disconcerting stories may only further stress you out. Time to unplug, go for a walk and, in a calm thoughtful manner, think about what all this means. Kovacs says it may be a cliché, but a good night’s sleep has a way of allowing you to recharge and approach any problem with clarity.
Gain some perspective Since markets go up and down day by day, it might be hard for long-term investors to see how much their investments are gaining ground until they have put a couple economic cycles behind them. Kovacs says that while we may have hit a rough patch, we should remember that 2021 was a singular year for market highs. If you have been investing for many years and have a well-balanced plan, you may see that despite some harsh days, your investments could be sound.
Ask if this presents an opportunity Looking at events from a short-term vs. long-term perspective can separate the optimists from the pessimists. Many of us are investing for the long term which can make stock declines just bumps in the road. That perspective can also allow some investors to take advantage of short-term negative events. For instance, some stocks you may have been admiring last month may suddenly seem so much cheaper. If the companies are still fundamentally sound, you may consider investigating further to see if they have a place in your portfolio.
Markets throughout history have experienced periods of intense volatility before finding a new, more stable equilibrium. Learning how build your portfolio and manage your anxiety during periods of market upheaval can help make it possible to grow your wealth over the long term.