Interest rates, trade talks, inflation fears, political events, and international developments all can influence stock prices. Market volatility is inevitable. How you react to the changing markets could affect your portfolio.
Market corrections, defined as a drop of 10% or more in stock market value typically measured by a major index, such as the S&P 500, have occurred periodically through the years. Corrections can last anywhere from days to months, but few have lasted longer. The good news for investors is that history suggests the market tends to eventually bounce back after the broad-market benchmark suffers a correction. During periods of volatility, it is important to remember that stock market corrections are not unusual and represent a normal part of the investing cycle.
To manage the uncertainty, do not panic. Panic selling is often people's gut reaction when stocks are falling, and there is a drastic drop in the value of their portfolios. Therefore, it is so important to know and understand your risk tolerance and how market fluctuations—or volatility—will affect you. Instead, rebalancing your portfolio based on market conditions has historically been considered a tactical approach to weathering volatility.
Markets move in cycles, and it is easy to forget that pullbacks, corrections, and even bear markets happen from time to time. Some market watchers would even suggest down cycles are healthy overall.
Despite all that has gone on in the world over the past two years and all that could transpire in 2022, markets continue to remain resilient. Overreacting to short-term market movement by panicking in the face of volatility is one of the biggest mistakes investors often make.
We understand this can be unnerving and sometimes cause you to rethink how you feel about market risk. That is why it is so important to sit down with your financial advisor to discuss your needs and identify your risk tolerance when developing a financial plan.
We recognize that the challenges and stress of an ever-changing market can be overwhelming. Our commitment is to utilize all our resources to help you overcome these challenges and set out to achieve all your goals with a thorough and comprehensive financial plan with diverse strategies and tactics. Please do not hesitate to contact us to review your current plan and help ease your mind during uncertainty.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.