Morningstar Direct reveals that the S&P 500 dipped nearly 12% on 16th March 2020, and within 17 days, it had recovered fully, according to a report on CNBC. A market crash is inevitable, and as a stock investor, you’re likely to experience many cycles of boom and downturns. The good news is that market volatility doesn’t last long.
However, the duration it takes for your savings to rebound in the market depends on allocation. For example, it took a portfolio with over 70% of stocks and the other percentage in cash and bonds two years to recover from the 2008 financial crisis.
Interestingly, a portfolio with an estimated 70% in bonds and cash and the remainder in stocks took only seven months to rebound. For this reason, experts recommend learning what affects stock prices and then take a long-term approach to handle market downturns. Below are tips to protect your investment from stock market volatility.
Review your portfolio risk
Reviewing your current portfolio risk is critical if you want to survive market volatility and achieve your financial goals. Remember that failure to rebalance your stock or bond strategy for some time, let’s say more than five years, can result in a greater stock allocation. This means you attract more risks beyond your comfort level. You also expose your portfolio to greater downturns in the future.
With this in mind, consider mapping your stock asset allocation of bonds or stocks aligned to your financial goals. You should also make sure your portfolio is balanced to a risk capacity level you can manage. To achieve the best results, consider using an investment platform available in the market.
For instance, Atom Finance allows you to assess all your investments over various brokerage accounts so you can view your stocks and holdings. Then you can rebalance them accordingly to avoid greater volatility during an economic downturn.
Have a financial plan
Without a realistic financial plan, you risk losing tons of money in the stock market. One thing you should understand is that an investment portfolio is a vital piece of your financial status. However, you should manage it from the context of your financial strategy so that you can determine if you’re on the right track to accomplish your investment goals.
Therefore, take the time to plan your finances before adjusting your investment strategy. Planning your finances is beneficial as it helps you adjust your portfolio and savings strategy to fit your financial goals.
Don’t predict the stock exchange market
Predicting the stock market is a gamble, as it’s based on luck. Note that even the most experienced investor will make the right call today and make wrong choices the next day. So, instead of avoiding market downturns, stay invested through the best and trying times.
Avoiding market volatility reduces your chances of enjoying a greater rebound. For this reason, strive to diversify your portfolio because a well-diversified portfolio is less volatile than one focused on a single investment.
Surviving market volatility might seem impossible if you’re new in the stock exchange. But with the right strategies in place, you can protect your investments and meet your financial goals. Consider reviewing portfolio risks, financial plans, rebalancing risks and rewards, and diversifying your portfolio. Also, implement the dollar-cost averaging tactic and avoid predicting the market.