While the urge to act is natural, it’s almost never a good idea to make impulsive decisions about your portfolios.
There are, however, four things you can do when volatility strikes.
When market uncertainty occurs, it’s time to get back to the basics. In other words, trust in portfolio diversification and rely on traditional risk mitigation tools (e.g., Treasurys, gold, liquid alternatives) to play the role they were designed to play in your portfolio.
Diversification may lower a portfolio’s risks by not overexposing the investor to any one type of investment or asset class. Over time, allocations change with market movements, so rebalance regularly to return to your target allocation.
History has shown that time in the market — not timing the market — tends to lead to more successful outcomes over the long term. This is especially true during volatile periods that see large, outsized movements in either direction.
Time is a great leveler, and swift and sizeable recoveries have historically followed steep declines.1 And some of the markets best days have occurred after their worst, as out of the worst 20 days the market was up on 17 of the following days. Four of which were in the top 20 performing days all-time.2
So, if you threw in the towel after one of those bad days, only to get back in the market a day later, you would have left some serious money on the table (Figure 1).