Why you should stick with your investments in a volatile market.
In today’s volatile market, you may be tempted to reevaluate your current investment strategy. With the looming threat of recession and daily reminders of inflation, continuing or considering to implement an investment plan may seem rash and risky. But is this really the case?
Here are a few points to consider before you decide to ditch your current investment strategy in today’s market.
A volatile market is part of the game.
Similar to a roller coaster, the market will certainly have it’s ups and downs. There will be moments of calmness and growth and also times of hesitation and losses. In the moments of market volatility, your instincts may tell you to flee your investments. If you choose to sell, though you’ll effectively lock yourself into those losses and relinquish the opportunity to potentially recover in the future.
No one wants to see losses — that's natural. Try not to check your accounts too often during moments of market volatility to help ease your mind.
Time is a virtue.
The sooner you can stash some cash, the more rewarding it will be in the long run. If you’re able to invest money when you’re young, your money will be able to work for you throughout the years and help you build significant wealth.
This all boils down to the benefits of compounding. If you invest $5,000 at age 25 and assume a 6% annual rate of return, in 40 years at age 65, that $5,000 becomes over $51,000. Start with that same amount at 40 and by 65 that initial savings has grown to just over $21,000. It's harder to build wealth the later you start.
Understand your plan and adjust where needed.
Understanding your risk tolerance is important to deciding if you need to adjust your current or future investment strategy. If you’re young and have a long time before you need to dip into your funds, you can afford to take on more risk. On the other hand, if you plan to retire soon and want easy access to funds, your tolerance for risk is low.
Experian explains that diversifying puts you in a better position to weather market volatility. That way, "if one group of your investments goes down in value, the hope is that you can soften the blow because you've still got other assets that are performing well. Putting too much of your money into one type of investment can be very costly if the market takes an unexpected turn."
Lastly, if you’re stuck, ask for help! Seeking the advice from a financial advisor can help you better understand your current or planned approach.
Between the current state of the economy and possible personal financial hurdles, there’s an undoubtable sense of unease when considering to start or continue your investment strategy. But before you change your mind, it’s important to understand the full picture of our market and how making smart decisions today can help you in the future.