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How you can deal with market volatility

Jun 08, 2020

Market swings can be troubling when it comes to your money. . Instead of being worried, the best course of action is to be prepared.? The good news is that there are strategies for dealing with market ups and downs. Strategies you can follow to ensure you haven’t taken on too much risk, and that help you focus on what matters when your news feed is filled with scary messages about struggling markets.

“The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.” – Seth Klarman.

Focusing on the long game

Market volatility is unavoidable. It is part of normal and healthy market behavior. Just like seasons,?markets move through stages?of growth, slowing down and speeding up. Unfortunately, the timing of those cycles are unpredictable. While dramatic moves in the market can make you question your investment plan, it’s important to remember not to panic. When the market does drop, the historical facts show that eventually it always comes back even stronger.

While, it’s natural to want to protect your portfolio after a market decline, it also raises the question of when to get back in. As shown in the below chart, here is why it doesn’t work successfully for most investors. By missing the best weeks in the market, investors greatly affect their potential returns.? For example, an investor who stayed invested in Canadian equities over 20 years would have seen their $10,000 investment grow to $41,402 (total return). If that same investor, missed out on the best week, their $10,000 investment would only have grown to $36,619. Keeping focus on your long-term investment goals can help quiet the media noise around falling markets and help prevent you from making rash investment decisions that don’t follow your plans.