Tips for Handling Market Volatility
When the market experiences stretches of heightened volatility, many investors react in a panic and make some classic investor mistakes, such as buying high or selling low. The natural human tendency is to pile onto trends in the market one way or another. Whether it is a hot stock that is constantly making headlines or a 10% downturn in the market, many investors tend to make impulsive decisions based on a herd mentality. As investment advisors, an important part of our job is to keep clients from panicking during times of great market stress or overreacting during great market bull runs.
Over the past few weeks, investors have experienced the kind of market volatility that we have not seen since the days of the fiscal cliff and S&P downgrade of the U.S. AAA credit rating in 2011. In our market commentaries and blog posts, we often emphasize the importance of not panicking during market volatility and sticking to a long term investment strategy. Fortunately, despite a near 10% correction, the market has recovered much of the ground initially lost in October to the point where the S&P 500 is headed to close this week at a slight gain for the month. While the volatility may continue in the weeks and months ahead, as the market deals with shaky economic data in Europe and the end of quantitative easing in the U.S. (announced by the Fed on Wednesday), the recent market rebound highlights the need to keep a level head during stressful periods of market volatility.
The link below is to a Wall Street Journal article that outlines some good tactics for investors to use to keep perspective on the markets and avoid panicking during times of uncertainty.
Wall Street Journal Article: Don't Let Stocks Drive You Crazy