Tips From an Advisor on How to Manage Market Volatility

How do you manage market volatility? Managing an investment portfolio can be a challenge in any economy, and market turbulence tests investors further. One critical factor in managing market volatility is to stay committed to your long-term investment plans.  

Market corrections are normal and cannot be eliminated. However, volatility within your portfolio and its impact on your long-term financial growth can be mitigated. This article  will layout these tips and strategies to manage market volatility: 

  • Understand your timeline and remember your plan
  • Maintain a diversified portfolio
  • Identify investments with a low correlation to a broader portfolio
  • Take an active approach to risk management
  • Consider dividend-paying stocks 
  • Market downturns can offer opportunities
  • Keep your moves strategic


Understand Your Timeline and Remember Your Plan  

The impact of a market correction can be vastly different for someone approaching retirement versus someone with twenty years left to work and save. The correct approach to market volatility will not be the same across the board, which is why it is essential to define your timeline and financial plan. 

If you haven’t discussed your investing time frame, goals, and strategy with a  CERTIFIED FINANCIAL PLANNER™ in the D.C. area, it is a wise thing to do before making any adjustments based on market movements. Selling equities after a drop locks in losses at the sale price. However, staying the course is not always the only winning strategy. 

If you are saving toward a goal and have made good progress, taking on less risk may make sense. This can be true in any market condition because as you approach a goal,  you have more to lose than gain. A lower risk profile increases your peace of mind. 

On the other hand, if your significant goals are still a couple of decades in the future and you’ve got a well-balanced portfolio, you may be best served by riding out the market with relatively few adjustments. Though it is essential to keep in mind your unique situation and goals, here are a few strategies that can help you manage market volatility. 


Maintain A Diversified Portfolio  

Magnifying glass on multi-colored sheets of paper. Search for diversity color combinations. The concept of finding a variety of choices.A diversified portfolio lowers your risk because you’re not overexposed to any one type of investment. Diversification doesn’t translate into guaranteed profit, but it can help reduce the effects of volatility. 

The most common way investors diversify is between stocks, bonds, and cash. This is good, but there are many additional ways to diversify. 

For example, you can consider allocating a portion of your portfolio to an international or global fund. Sometimes international markets can perform very differently than the U.S. 

Another way to diversify is by investing in companies of various sizes. A mix of small,  mid, and large-cap stocks is one way to do that. Although there is no way to predict the performance of different-sized companies, some smaller companies may be agile enough to adapt to economic changes and exploit untapped market niches. 

Some investors might consider a target-date fund. It is an asset allocation mutual fund that can help balance returns and stability. Its mix of securities, asset classes, equities,  and fixed income gradually shifts as your ‘target date’ or projected withdrawal date approaches. 


Identify Investments With Low Correlation 

Investments with a low correlation to the S&P 500 will either move independently of stocks or have an inverse reaction to market conditions. You can reduce your exposure to stock volatility by allocating some of your holdings into investments that historically react differently to market and economic changes. 

History does not repeat itself exactly, so it remains important to research any prospective investment in the context of today’s economic environment. However, a few assets that have had a low historical correlation with the stock market include treasury bonds with inflation protection, gold, real estate, and U.S. utilities. 


Take an Active Approach to Risk Management  

Mature couple connected on internet with laptopWhile you don’t want to overreact to market volatility by selling too much too fast, hiding your head in the sand and avoiding taking any action can be just as harmful. Don’t disengage and be passive when faced with volatile market conditions.  

Both overreacting and avoidance are giving in to emotions. What you want is a rational approach. Risk management is always important and especially critical during economic changes and volatility. As comfortable as you are with your plan and your portfolio, keep your eyes open and your mind clear for possible improvements and opportunities. 


Consider Dividend-Paying Stocks  

Dividend-paying stocks add a revenue stream to your investments that can help balance out volatility. As an investor, you receive something of a return even while prices are moving up and down. Of course, companies that pay dividends can stop or reduce their payments at any time, but you can look at their historical performance as part of your pre-purchase analysis. 

When you consider different dividend-paying stocks, take a look at how long the company has paid dividends and if the dividend has increased or decreased over time. 


Market Downturn Can Offer Opportunities 

You do not want to look back at a bear market or period of volatility and realize you missed out on golden opportunities because you bought into fear and stopped investing.  While it’s unpleasant to watch your existing portfolio go through upheavals with changes in the market, times of economic change can be outstanding periods to purchase stocks and other investments at a relative discount.

Continue any automatic 401(k) or IRA deductions. Even if you and your CERTIFIED  FINANCIAL PLANNER™ in the D.C. area decide to change your allocations for new funds, keep up your regular contributions. Keep in mind that a down market is an opportunity to invest in quality companies at potentially reduced prices. 


Keep Your Moves Strategic  

One key to success with market volatility is to focus on long-term objectives and results rather than the day-to-day bumps. Keeping a clear head and a strategic approach can be challenging but also rewarding. 

The best thing you can do for your investment success is to keep the long view in mind. Market corrections are normal, and over a long investment career, you will inevitably experience several significant declines. Historically, bull markets outlast bear markets, so maintaining a sense of the big picture helps keep you aligned with your goals. 

At Brown | Miller, we have a combined 90 years of experience in financial planning and wealth management. Our team has guided clients through several market cycles, and our goal-driven, customized approach is designed to keep you on the right track. If you would like a portfolio review or have questions, feel free to contact us

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This article is intended for informational purposes only, and not to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally. 

The information provided in this article represents the opinions of Brown Miller Wealth Management (“BMWM”) and is expressed as of the date hereof and is subject to change. BMWM assumes no obligation to update or otherwise revise our opinions or this article.  The observations and views expressed herein may be changed by BMWM at any time without notice. The information may be based on third-party information, which is deemed reliable, but its accuracy and completeness cannot be guaranteed. BMWM provides links for your convenience to websites produced by other providers or industry related material. Accessing websites through links directs you away from our website. BMWM is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites.

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Author: Christopher W. Brown, CFP®, CIMA®

Christopher W. Brown is the Founder and Managing Principal at Brown | Miller Wealth Management.