How to navigate market volatility
Find out how to prepare and stay the course during the market’s ups and downs.
Even though volatility is a normal part of market cycles, it can be difficult for even the most experienced investors to go through. However, history shows the market is ultimately resilient, and those who stay invested over the long term are often rewarded.
As you navigate these challenging conditions, an Ameriprise financial advisor is here to help keep you on course and address any concerns you may have. Here’s a look at several time-tested strategies that help investors stay focused on their long-term financial goals when there’s stress in the markets.
Prepare for market volatility
While market volatility can be difficult to predict, there are actions that can be taken in advance to prepare:
- Create a personalized investment strategy: Your financial advisor will work with you to determine an appropriate asset allocation and diversification of investments based on your goals, risk tolerance, tax situation and time horizon. Taking these factors into consideration helps reduce the long-term impact of volatility in your portfolio’s value, so you can feel more confident during times of uncertainty.
- Regularly rebalance your portfolio. Your financial advisor will revisit your investing strategy regularly when they work with you to rebalance your portfolio. Rebalancing is the systematic movement of money among the various assets in your portfolio to bring your investments back into alignment with your long-term strategy and risk tolerance. If left unattended, a portfolio’s asset allocation may evolve to a different risk profile than you planned for. As a result, you might find your portfolio is too aggressive with too many stocks or too conservative with too many bonds. By regularly rebalancing your portfolio, you can maintain a risk profile you’re comfortable with.
- Remove emotion from investing with dollar-cost averaging: Dollar-cost averaging is a systematic investing approach where you invest the same amount in the same vehicles on a fixed schedule — regardless of the market movements. In the near term, dollar-cost averaging helps prevent you from making emotional decisions. Over the long term, this approach can potentially lower your average cost per share and reduce the risks that come with trying to time the market.
- Maintain an adequate cash reserve: A cash reserve is the amount of money you have on hand to pay for financial emergencies. The process for establishing an adequate amount of emergency cash will differ depending on your personal situation and the needs that could arise. In general, it’s considered a best practice to keep three to six months of living expenses in a liquid cash account so you can easily access the funds. During times of an uncertainty, an adequate cash reserve can help you feel more secure, better equipping you to wait out the unexpected. Using credit cards, loans or tapping into retirement savings to pay these expenses is usually not ideal.
Market volatility resources
During periods of uncertainty in the markets, it can be challenging to determine what, if any, action to take. We have resources to help you navigate market volatility and prepare for a confident retirement.See resources
Stay invested amid prolonged market volatility
When a market downturn does eventually arrive, it’s normal to find yourself with doubts. Here are a few ways to stay on track — and potentially take advantage of the environment:
- Trust your personalized financial strategy. Your financial strategy is tailored to your goals, needs and preferences and is designed to weather the unexpected. It can be easy to stick to the plan when the market is up. However, it’s equally — if not more — important to also stick to it when the market is down.
- Increase your systematic investment contributions. If you have extra money you can invest, market drawdowns can be an advantageous time to increase your regular contributions, as share prices will often be lower. However, you’ll want to consult your financial advisor before doing so.
- Avoid large actions such as distributions or withdrawals. While you may be tempted to make withdrawals or take distributions during downturns, doing so may turn a temporary loss into a permanent one. Again, you’ll want to discuss the decision with your financial advisor to ensure you’re aware of the impacts and alternatives.
- Take advantage of tax-loss harvesting, when applicable. Tax-loss harvesting is one way to use the tax code to help reduce the sting of an investment loss. When executed properly, tax-loss harvesting can allow you to manage and reduce your tax burden by selling investments at a loss to offset the taxes owed on capital gains from other investments. Your financial advisor can identify potential tax harvesting opportunities that may benefit you.
- Be patient. While easier said than done, practicing patience is key to successful long-term investing. Market downturns are normal, and during such times, it’s helpful to focus more on what you can control, such as how much you save.
We’re here to help you stay the course
During times of market volatility, know that your Ameriprise financial advisor will help keep you on track to your financial goals, like retirement. If you have any questions or concerns, reach out — they are a resource you can lean on.
Asset allocation and diversification do not assure a profit or protect against loss.
Ameriprise Financial cannot guarantee future financial results.
Dollar-cost averaging is a method of investing that helps reduce the risks of market timing by investing a fixed amount at regular intervals. When prices are low, your investment purchases more shares. When prices rise, you purchase fewer shares. Over time, the average cost of your shares will usually be lower than the average price of those shares. It does not assure a profit or protect against losses in a declining market. However, over longer periods of time it can be an effective means of accumulating shares. Investors should consider their ability to continue investing through periods of low market prices.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
© 2023 Ameriprise Financial, Inc. All rights reserved.