You’ve probably noticed that the stock market has been a little bit volatile lately. Dropping by hundreds of points one day, and then gaining hundreds of points a day or two later. There is a great deal of uncertainty right now, and that usually means market volatility as investors try to figure out what to do next.
While there is no way to completely protect your investment portfolio from the dips in the market, and there is no way to predict what could happen next with any sort of accuracy, there are some things you can do to keep from letting market volatility ruin your financial futures. Here are a few things to try:
In the short-term, the market is quite volatile. Your trend line is going to be all over the place. However, over the long haul, things tend to smooth out — and trend higher. When you look at stock performances over the course of decades, things look much less scary. If you have looked at the fundamentals, and you buy stocks that are fundamentally sound, and have good value and staying power, in the long term you are more likely to come out ahead (although there is no guarantee that something horrible won’t happen at the last minute).
Taking a step back, and looking at the long-term, rather than letting panic over the short-term rule you, can be a good move. Create a long-term investing plan, and then stick with it. Only make tweaks when something changes fundamentally; realize that panic selling will only lock in your losses.
Consider Dollar Cost Averaging
Another strategy is to employ dollar cost averaging. If you have a regular amount of money that you invest, you can actually benefit from dips in the market. At times when the market is lower, your dollar will buy more. This means that, when the market heads higher, you will have more shares at a higher price. Even though this means that you will have to pay more for shares at times when the market is higher, over time, it usually evens out. The key is to consistently invest, even when the market is lower.
You can also use this strategy to invest in dividend stocks. Many dividend stocks offer solid value. Plus, even when the economy and market tank, you can receive payouts. Dollar cost averaging can help you build a solid dividend portfolio that can help you through volatile times.
Others prefer to avoid the volatility and unpredictability that comes with individual stocks. You can invest in funds that follow specific indexes. These funds are usually low cost, and they prevent you from the worry that can sometimes come with investing in individual stocks. Over time, stock indexes tend to rise, so investing in them now, and keeping with your plan, can likely help you in the future. You don’t have to worry about stock picking when you use index funds. That can be a real advantage when it comes to beating market volatility in the long term.