6 Tips to Navigate Volatile Markets
1. Keep perspective: Downturns are normal
On average over the past 150 years, US stocks have dipped into bear market territory about every 6 years, with median losses of 33%.1
But while market downturns may be unsettling, history shows stocks have recovered and delivered long-term gains.
Despite market pullbacks, stocks have risen over the long term
Source: Fidelity Investments. Past performance is no guarantee of future results
2. Get a plan you can live with – through market ups and downs
Your mix of stocks, bonds, and short-term investments will determine your potential returns, but also the likely swings in your portfolio.
Pick an investment mix that aligns with your goals, timeframe, and financial situation, and you can stick with despite market volatility.
Choose an investment mix you are comfortable with
Data source: Fidelity Investments and Morningstar Inc. 2021 (1926–2021).3 Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only. It is not possible to invest directly in an index. Time periods for best and worst returns are based on calendar year. For information on the indexes used to construct this table see Data Source in the notes below. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet a participant's goals. You should choose your own investments based on your particular objectives and situation. Remember, you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. You should also consider any investments you may have outside the plan when making your investment choices
3. Focus on time in the market – not trying to time the market
It can be tempting to try to sell out of stocks to avoid downturns, but it’s hard to time it right.
If you sell and are still on the sidelines during a recovery, it can be difficult to catch up. Missing even a few of the best days in the market can significantly undermine your performance.
Missing out on best days can be costly
Hypothetical growth of $10,000 invested in the S&P 500 Index
January 1, 1980–June 30, 2022
Past performance is no guarantee of future results. Source: FMRCo, Asset Allocation Research Team, as of June 30, 2022. See footnote 4 for details.
4. Invest consistently, even in bad times
Some of the best times to invest have been when things seemed the worst.
Consistent investing can give you the discipline to buy when they are at their cheapest.
Consider setting a plan for automatic investments.
Investing during recessions has historically led to strong investment results
For illustrative purposes only. Recession dates from the National Bureau of Economic Research (NBER). Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. S&P 500 index monthly total returns from 12/31/49 to 12/31/19. Source: Bloomberg Finance, L.P.
5. Get help to make the most of a down market
While no one likes to lose money, your financial advisor may be able to help you take advantage of a down market.
Tax rules may let you use losses on some of your investments to reduce your future tax bills, or use lower share prices to convert to a Roth IRA at a lower tax cost.
Down markets may also be a good time to meet with your advisor to discuss adjusting your investment mix, or taking advantage of opportunities when prices are low.
6. Consider a hands-off approach
If you are not comfortable with market risk, consider turning your portfolio over to a professional through a managed account or all-in-1 mutual fund.
If you don't have a strategy, or think yours may be off track, start planning now. Or schedule an appointment with a us. We can help.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Past performance is no guarantee of future results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
1. Source: FMRCo, Bloomberg, Haver Analytics, FactSet. Data as of 10/13/2022.
2. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation. S&P and S&P 500 are registered service marks of Standard & Poor's Financial Services LLC. The CBOE Dow Jones Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. You cannot invest directly in an index.
3. Data Source: Fidelity Investments and Morningstar Inc. Hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various unmanaged indexes from 1926 through the latest year-end data available from Morningstar. Domestic stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926-Jan 1987, then by Dow Jones US Total Market data starting Feb 1987 to Present. Foreign stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926–Dec 1969, MSCI EAFE Jan 1970-Nov 2000, then MSCI ACWI Ex USA GR USD Dec 2000 to Present. Bonds represented by US Intermediate-Term Government Bond Index Jan 1926–Dec 1975, then Barclays Aggregate Bond Jan 1976 - Present. Short-term/cash represented by 30-day US Treasury bills beginning in Jan 1926 to Present. Past performance is no guarantee of future results. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet an investor's goals. You should choose your own investments based on your particular objectives and situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals.
4. The S&P 500® Index, a market capitalization–weighted index of common stocks, is a registered trademark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation. This example is for illustrative purposes only and does not represent the performance of any security. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The return used in this example is not guaranteed.
MSCI ACWI (All Country World Index) ex USA Index is a market capitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States.
Bloomberg Barclays US Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
LPL Financial does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.
Past performance is no guarantee of future results.
As with all your investments, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. We not recommending or endorsing any investment by making it available to our customers.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.
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