Handling Market Volatility

By Pamela J. Sams

Conventional wisdom says that what goes up, must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when it’s your money at stake. There’s no foolproof way to handle the ups and downs of the stock market, but the following common sense tips can help.

Don’t put your eggs all in one basket
You can handle market volatility by diversifying your investment port¬folio. Asset allocation is key; identify the asset classes that are appropriate for you and allocate a certain percentage of your investment dollars to each class (e.g., 70 percent to stocks, 20 percent to bonds, 10 percent to cash alternatives). Asset classes often perform differently under different market conditions. Spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives (e.g., money market funds, CDs, and other short-term instruments), has the potential to help manage your overall risk. Ideally, a decline in one asset will be balanced out by a gain in another, though diversification can’t guarantee a profit or eliminate the possibility of market loss.

Focus on the forest, not on the trees
Only you can decide how much investment risk you can handle. As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on long-term investing goals and an overall portfolio. Don’t overestimate the effect of short-term price fluctuations on your portfolio if you still have years to invest.

Look before you leap
When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The small returns that typically accompany low-risk investments may seem downright attractive when more risky investments are posting negative returns. Before you leap into a different investment strategy, make sure you’re doing it for the right reasons. How you invest your money should be consistent with your goals and time horizon. Past performance is no guarantee of future results, and stocks have historically outperformed stable value investments over time. If you move most or all of your investment dollars into conservative investments, you’ve not only locked in any losses you might have, but you’ve also sacrificed the potential for higher returns.

Look for the silver lining
Like every cloud, a down market has a silver lining. That silver lining is the opportunity to buy shares of stock at lower prices. One of the ways you can do this is by using dollar cost averaging. With that, you don’t try to “time the market” by buying shares at the moment when the price is lowest. In fact, you don’t worry about price at all. You invest the same amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of stock. When the price is lower, the same dollar amount will buy you more shares.
Dollar cost averaging can’t guarantee you a profit or protect against a loss. Over time a regular fixed dollar investment may result in an average price per share that’s lower than the average market price, assuming you invest through all types of markets. Take into account that dollar cost averaging involves continuous investment in securities regardless of fluctuating price of such securities, and you should consider your financial ability to make ongoing purchases.

Don’t count your chickens before they hatch
As the market recovers from a down cycle, elation quickly sets in. If the upswing lasts long enough, it’s easy to believe that investing in the stock market is a sure thing, but it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach is to have a plan, stick with it, and strike a comfortable balance between risk and return.

Don’t stick your head in the sand
While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check up on your portfolio at least once a year, and more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance or so that it better suits your current needs. A financial professional can help you decide which investment options are right for you.

This information was prepared by Forefield Inc. and has been made available for ING Financial Partners’ representatives for distribution to the public as educational information only. Forefield Inc. is not affiliated with nor controlled by ING Financial Partners. The opinions/views expressed within are that of Forefield Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal ad-vice.You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.

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About Pamela J. Sams

Pamela J. SamS, CRPC, MBA has been helping women and their families improve their personal and financial wealth through good financial planning for the past 10 years. She is a Financial Advisor with Financial Planning Services of Northern Virginia with an office located in Herndon. She is an investment advisor representative and offers securities and advisory services through ING Financial Partners, Inc. Financial Planning Services is not a subsidiary of, nor controlled by ING Financial Partners.You may contact Pamela at 703-234-7918, online at "www.pamelasams.com":http://www.pamelasams.com or by email: Pamela@MakingMoneySense.com