When markets are volatile, investors typically get nervous. But market volatility can be either up or down and can provide opportunities just as it does challenges.
Understandably, you may have concerns when inflation soars, interest rates climb, markets go sideways, and commodity prices jump. Any of it could negatively impact your investment portfolio, leading you to consider changing or abandoning your investment strategy.
However, market volatility comes and goes. The dramatic swings and ups and downs may keep you nauseated, but financial professionals within a financial services firm like Networth Advisors follow key principles to effectively manage your wealth.
Let’s explore the key principles of effective wealth management to navigate market volatility.
What Is Market Volatility?
Financial markets sometimes see prices jump or drop sharply and unpredictably. This can happen over days, weeks, or months. You, as an investor, are likely to be more concerned about downside volatility. But not all market volatility is bad. A market drop can create opportunities for you to find value investments.
Market volatility may surprise you, but it typically happens for a reason. It often is connected to geopolitical events, such as wars, or political occasions like a presidential election. Or it can be caused by unexpected economic news or Federal Reserve policy changes.
Key Principles to Navigate Market Volatility and Manage Wealth
If you have a financial plan, the following key principles can help you weather economic uncertainty in the markets:
Keep a Long-Term Perspective
You might be moved by short-term fluctuations in the market to change your investment strategy. But your financial plan is built on your long-term goals, and staying with the plan can get you through volatile times.
Diversify Your Portfolio
Spreading your investments across asset classes—stocks, bonds, real estate, and alternative investments—as well as industries, sectors, and geography can go a long way to mitigating risks and reducing the impact of a downturn in markets.
Choose Quality Investments
It may seem like something you expect to do with all your investments, but focus on selecting quality investments that have solid fundamentals: strong balance sheets and consistent earnings growth.
Maintain a Cash Cushion
Market volatility presents opportunities when markets decline. You may be able to find good value in investments whose price has dropped. Keeping cash in your portfolio can give you the liquidity and flexibility to seize such opportunities.
Understand Your Risk Tolerance
Assessing whether you’re more comfortable with an aggressive approach or a conservative approach to investing can align your risk tolerance with your investment strategy. Knowing your risk tolerance can aid you and your advisor in deciding to stay with your plan or make a change when the market turns volatile.
Review and Rebalance
You must regularly review your investment portfolio to assess its performance in changing markets and rebalance your portfolio to restore it to its asset allocation.
Stay Informed
You always want to make informed decisions about your investments, especially during times of market volatility. Working with an experienced financial advisor can help you do that. Staying on top of market trends, financial news, and political news helps keep you aware of potential signs of coming market volatility.
For the investor who is prepared, volatility in markets can present challenges, but the opportunities are there too. Staying with your financial plan allows you to strike a balance between the risks and rewards of market volatility.
Talk to a Financial Professional About Market Volatility
With inflation, rising interest rates, and global unrest, economic uncertainty might feel like a permanent fixture to you and make you a little nervous. At Networth Advisors, we can discuss the key principles we apply to managing your wealth amid volatile markets.
To schedule a meeting, call (800) 822-3639 or email schedule@networthadvisorsllc.com. We look forward to speaking with you!
