How to Prepare for Market Volatility

June 22, 2022
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Market volatility can be scary to even the most experienced investor. The stock market has been on a wild roller coaster ride in recent years, though it’s not really anything out of the ordinary when you look at historic trends. The significant drops in the S&P500 in 2022 have caused some investors to go into panic mode. Meanwhile, new investors are always hesitant to get into the market because they know it can have such major ups and downs.

It’s always exciting when the market is strong and stock prices are going up. Then, it’s not as enjoyable when we have big drops. The important thing to remember is that you can’t overreact to changing market conditions. You have to create a successful long-term plan and make the right moves when appropriate.

Here are a few good investment tips to help you navigate market volatility:

Think Long-Term

Severe market volatility often inspires short-term thinking. It causes people to panic and liquidate their portfolios. They sell during a drop because they fear it will get even worse. They sell everything when the market is high because they think that’s the right thing to do. After all, the old saying is “buy low, sell high,” right? Stock buyers may go on a spending spree when the market is down because of this same mentality. This isn’t a viable way to survive in the market for many years to come.

Your investment plan must be built for the long-term. Yes, there will be some short-term decisions and strategic moves to make along the way. However, the core of the plan is designed to handle the natural ebbs and flows of the market. You see dependable gains in a bull market, but can mitigate risks and manage losses during a bear market. Diversification is an important component of long-term investment planning as it will help you stay protected from any extreme market volatility.

Don’t Stock Watch

Another bad investor habit is watching stock prices every single day. This can drive you mad. Limit how often you check your portfolio. Having an investment advisor will also help here. Let them crunch the numbers and analyze the trends, so they can guide you in any market conditions. When it comes to long-term investment management, no news is generally good news!

Maintain Enough Liquidity

In addition to having a diverse, well-managed investment portfolio, you will want to maintain a comfortable level of liquidity at all times. Maintain a certain amount of cash reserves. This is another way to protect your portfolio from market volatility. You can continue to live your life without letting a market drop affect your immediate livelihood.

This is Normal

Perhaps the most important thing to keep in mind is that market volatility is normal. All financial markets are cyclical in nature and history has proven this time and time again. There will always be ups and downs, both minor and major. There is no way you can control everything. Where you do have control is in building a solid investment plan that stands the test of time and sets you up for the best possible financial future.

Financial independence does not happen overnight. Don’t let fear or panic drive your decisions. Work with your financial advisor to develop a strategic investment plan and then make some smart moves and adjustments along the way. This is how you become successful as an investor. Short-term market volatility should only be a minor speed bump on the lifelong journey toward financial freedom.

For help with your financial plan and investment strategies, contact Illumination Wealth and talk with one of our leading financial specialists.