Investing can be tricky. The markets can perform well one week and poorly next. Market volatility is inevitable, so ensure your portfolio can withstand the ups and downs of investing. While you cannot prevent market fluctuations, you can take steps to help minimize their effect on your portfolio’s returns.
Diversify Your Investments
Protect your portfolio from market volatility by spreading your money among different investments. Investments perform differently under various market conditions. Consider various asset classes, industries, economic sectors and areas of the world. Diversifying your portfolio1 cushions your investments against major losses.
Reassess Your Risk Tolerance
There is nothing like a drop in your portfolio’s value to test your true ability to withstand risk. Historically, markets usually recover from their losses.2 It is hard, however, to pinpoint an exact recovery timeframe. Make sure your portfolio includes investments with the potential for earning higher long-term returns, while still falling within your risk comfort zone.
Tough it Out
A comprehensive investment strategy begins with identifying long-term goals with an investment professional. Having clear objectives and an investing timeframe can help you withstand market uncertainty and remain calm when investment values fall. Unless an investment has consistently underperformed its benchmark, resist the urge to sell when prices are low. If your risk tolerance or goals have not changed, sticking with the investment strategy you originally chose is usually a good plan for weathering market volatility.
To assess your investment portfolio for protection against market volatility, contact a Fifth Third Bank financial advisor.