It’s Baaack: Volatility Returns. How To Keep Your Cool When Markets Act Crazy

It’s up! It’s down! This market is crazy!

Hope you weren’t getting too used to those quiet, calm investment markets that went nowhere but up, ’cause those days are definitely behind us.

The past few weeks have seen tumultuous plunges and then sudden recoveries in the market, with the S&P 500 registering its first quarterly loss since 2015.

In fact, there have been so many frantic ups and downs that strategists at Charles Schwab & Co have taken to calling this a “bunny market,” since it’s hopping all over the place.

Just for the record, the calm, uneventful markets we experienced last year are not typical.  “Normal” markets usually experience a 10% correction once per year on average, and roughly five 5% drawdowns each year.

We’ve had none of that, until a month or so ago. While it seems to have been exceptionally volatile lately, these upheavals – pullbacks and recoveries – are actually perfectly normal.

“Volatility is a normal part of investing that can be triggered by any number of events, so investors shouldn’t be surprised when it occurs,” writes Michael A. Pollock for the Wall Street Journal.

Still, it’s hard not to be a tad unnerved watching the Dow plunge more than 1000 points  (although as Pollock points out, in percentage terms, those drops are not that momentous).

So when the market becomes a little too much like a roller coaster for your taste, keep in mind these tips to keep your cool:

♦ Even solid, conservatively-focused funds and ETFs will lose value on pullbacks. That doesn’t mean they are bad or dangerous investments. Just hang in there and wait for the storm to pass.

♦ Market strategists still view stocks, especially foreign stocks, as more attractive than bonds. So don’t use volatility as an excuse to bail out of growth investments. You need them in your portfolio to meet your long-term goals.

♦ Look at the bright side of volatility and pullbacks. Those crazy down days make the market more attractive by pushing down prices and creating better values. If you’ve been holding back and sitting on cash, use these pullbacks as “on ramps” to ease your way into the market.

♦ Growing volatility does not mean the end is near. Keep repeating: “This is normal.” At the same time, this is a more complex market. A rising tide may not lift all boats, so you’ll need to be more selective in defining your strategy and choosing investments.

One final tip. Those big swings of 1,000 points up and down aren’t as scary as they look. Think in terms of percentage changes and not points. It will help you keep things in perspective.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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