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Managing Your Investments Through Times of Market Volatility

July 2020

Volatility in markets can often cause investors to question the status of their portfolio and whether or not to make any changes. 

Many have recently experienced declines in the value of their investment portfolios, only to see a subsequent market recovery.

While the current environment is naturally unsettling, the way that you respond at this time can be critical for staying on track and achieving your long-term investing goals. Each market downturn is unique and some last longer than others, but stock prices have always recovered over the longer term and gone on to post new highs. 
Causes of short-term market volatility
Many different events can cause short-term volatility in stock prices, with infectious disease outbreaks recently emerging as one of the most common. Indeed, there have been six global outbreaks of infectious diseases since the SARS epidemic of 2003. Between SARS and COVID-19, the world also contended with the swine flu, MERS coronavirus, Ebola and Zika. 

Each of the previous outbreaks roiled the world's markets, creating investor anxiety, and each time, the markets recovered and continued their rise once the issue was contained. The challenge presented by COVID-19 is larger in scale but by no means insurmountable. Massive amounts of money and the world's best minds have been marshaled against the virus. It is only a matter of time until the threat is contained and people can return to normal life. 

The benefits of staying invested

For most investors, the best response in uncertain times is to stay invested. Your instincts may be screaming at you to sell everything and stash the cash under the mattress, but rash attempts to time the market often make a difficult situation even worse. If you sell after prices have fallen, you risk missing the rebound and may find yourself buying back in at a higher level than when you sold.

According to research by Fidelity Investments, an investor who missed just five of the best days of the S&P 500 stock market index between 1980 and 2018 would have ended up with 35% lower returns.

The trouble with trying to time — in other words, outsmart — the markets is that you simply can't know when the good days are going to happen.

Rebalancing your portfolio

Your portfolio should always be aligned with investment objectives and risk tolerance. It's important to periodically review and, if necessary, rebalance your portfolio to ensure you have the right asset mix.

If you've experienced a loss of income or changes in your family situation due to COVID-19, it may be time for a reassessment. Don't hesitate to contact me to arrange a meeting.

After rebalancing, stay the course

After rebalancing a portfolio, it's normal to be curious about the performance. You may feel the urge to check it frequently, even daily. However, may only cause you unnecessary stress, which could take a toll on your health. Like investing, rebalancing should be "set and forget." You don't want to bury your head in the sand, but at the same time, it's necessary to give your new investment strategy time to succeed.

Throughout history, stocks have generated long-term gains despite many short-term declines caused by unforeseen external events. The best way to weather the pandemic is to ignore the noise, keep your emotions in check and stay the course.
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Do you have questions about the impact of COVID-19 on your investments? Want to discuss rebalancing your portfolio? Give us a call, we're here to help.
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