Market Volatility Offers Opportunity to Evaluate Your Strategy

Personal Finance
Market Volatility Offers Opportunity to Evaluate Your Strategy

By Jamie Ebersole, CFA, CFP

Learn more about Jamie on NerdWallet’s Ask an Advisor

The recent volatility in global stock markets is a reminder that stocks don’t always go up in straight lines, as most of us might wish. However, it doesn’t mean we’re in for another recession, let alone a depression, either.

Given that most of us cannot effectively time the markets, these periods of turbulence give us a great opportunity to reassess our investment goals and strategy to see whether they still make sense. With this in mind, here are three tips that I share with my clients to help them through volatility:

Stay the course — don’t overreact

Research shows that investors are generally not very good at predicting the highs and lows of the markets and that they are much better off in the long term by remaining invested through market cycles — riding out the ups and downs. Having a diversified portfolio is a great way to preserve wealth and should dampen volatility compared with being concentrated in any one holding.

Check in on your strategy with your advisor

When markets are volatile, we really begin to see the benefits of diversification. During the recent sell-off in stocks, bonds held up relatively well and provided a nice counterbalance. Now is a good time to sit down with your advisor to discuss your current portfolio strategy to see whether it is working as expected and whether there were any surprises. Rebalancing may be required if you discover you have too much of your portfolio allocated to an individual stock or market sector that crept up on you over time.

Take advantage of the opportunity for tax-loss selling

If you have large capital gains from earlier in the year, now may be the time to sell impaired investments to offset those gains and thus reduce your capital gains taxes. Consult with your financial advisor and your accountant to make sure any sales are coordinated and executed in the most tax-efficient manner. I don’t generally recommend that clients sell investments at a loss without a good reason, so make sure you have a good reason.

Markets go up and down over time, but the long-term historical trend is always upward. In high-volatility markets, when prices change dramatically on a day-to-day basis, it can be a great time to check in on your portfolio to make sure your current strategy is working and is still aligned with your goals. If it is not, it may be time to make incremental changes to reposition your portfolio for the long term.

This article also appears on Nasdaq.


Image via iStock.


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