Two Approaches to Dealing With Stock Market Volatility
By Alan Olsen
The stock market and uncertainty go hand in hand. If the market was always stable and easy to predict, there wouldn’t be any risk at all and everyone would be rich. The market is always fluctuating, but some times are much more volatile than others. For example, this year has seen big swings, especially with the constant political battles facing our nation on a daily basis. From trade wars to taxes, there has been no end to instigators of market volatility in 2018.
Finding Success in a Volatile Market
But the fact is, no matter who’s in the Oval Office and what the current political climate is, there is always going to be market volatility. So the question is what should you do about it? There are plenty of philosophies, but here are two strategies that successful investors use to deal with volatility.
1.Bring it on–this may sound crazy, but embracing volatility isone of the keys to dealing with it. The fact is if you’ve spent any time at all investing, then you know the market is going to face some volatility. Therefore, it stands to reason that if you know it’s going to come, why be scared of it. You can’t run from it anyways, unless you decide to get out of the market completely. And that is not a good idea. The good news about volatility is that because you know it’s coming, you can actually plan for it. So, instead of running away scared at the first sign of trouble, you have a plan in place. That allows you to embrace the ups and downs and not let them determine your overall state of mind. So when things get tough, don’t be afraid to climb on board and go for the ride.
2.Keep a Long-Term Focus–when it comes to volatility, one of the best ways to beat it is to ride it out. Overall, the market hasa general upward trend. It may takea few years, or even a decade, but in most cases those who wait out the markets’ ebbs and flows end up on the positive side. One big mistakeis trying to trade daily. Those who invest successfully over the long-term understand that the market’s day-to-day ups and downs don’t mean much if they have a long-term financial plan in place. As long as they’ve made sound investmentsin companies that are run well they should end up on the positive side. Plus, one other benefit for long-term investors is the lower tax rate that comes withlong-term capital gains.
Living With Volatility
As long as there is a stock market, there will be volatility. There’s no getting around that. But if you have the right attitude, and the right approach, you can be successful even in the face of the worst ups and downs. That means the next time the market gives you fits, don’t run and hide. Embrace the title wave and ride it out until you reach the shore. There will most likely be positive returnsin the end.