Market Volatility: A Reality Check for the Long-Term Investor

By Chris Palabe, CFS®, AIF®

Market ups and downs are a normal part of investing, but that doesn’t make them any less stressful. Seeing big swings in your portfolio can be unsettling.

At Palabe Wealth, we’ve helped clients navigate market volatility for over 25 years by focusing on long-term strategies rather than short-term noise. A well-built financial plan accounts for these ups and downs, keeping you on track no matter what the headlines say.

Here are some reliable lines of action for navigating the fluctuations of investment market volatility.

1. Keep Long-Term Portfolio Health in Mind

Your investment portfolio should already be constructed with long-term goals and perspectives in mind—which the vast majority of regular investors do instead of focusing on short-term gains.

Diversification is the biggest key to mitigating risk during market volatility. Blending a variety of growth-oriented stocks with more stabilizing bonds and cash is a common way investors reduce the effect of short-term losses.

With investing, staying committed to a plan is far more important than reacting to temporary market swings. A disciplined investor is far more likely to withstand times of market volatility by concentrating on the bigger picture and future goals.

2. Look for Opportunities

No one relishes a market downturn. However, market volatility can present some unexpected opportunities for stability and even profit. Professional investors use market pullbacks to find fundamentally sound companies at a lower cost. In fact, if you’re contributing to an employer-sponsored 401(k) plan, its managers are already making those investments for you. 

This isn’t a matter of timing the market to beat an oncoming crash. It’s about keeping your portfolio active and steady with reliable commodities. This approach allows you to reap the benefits as the markets bounce back.

As of the latest data, the S&P 500 has once again entered correction territory, falling more than 10% from its all-time high set in February. This marks the lowest level for the index since September. Historically, the average maximum decline in a positive year is around 11% over the course of nine weeks. And every year or so, the market tends to experience a 10% pullback. So while the headlines may feel alarming, this kind of volatility is both common and in many ways a healthy part of long-term investing.

3. Keep Your Emergency Fund Intact

Every long-term investor should set up an emergency fund. But it’s even more important to do so during times of market volatility.

When emergencies happen, this fund serves as a buffer for unexpected expenses. If you need major auto repairs or home maintenance, an emergency fund can save you from shedding investments at a discount to pay for them.

Financial professionals recommend keeping an emergency fund with at least three to six months of living expenses. They recommend one year or more of living expenses if you are nearing or in retirement. This can assist you with short-term disruptions while your portfolio stays oriented toward long-term goals.

4. Maintain Discipline

Markets rise and fall, and companies come and go. But the overall marketplace has remained intact, overcoming occasional downturns and getting back on track every time.

Some of the worst days in the market are followed by some of the strongest. Investors who don’t panic or dodge in and out stand to gain from those recoveries. Discipline may be tricky to maintain, but it rewards.

Stay the Course During Market Volatility

Market volatility isn’t a reason to panic—it’s a reminder to stick to a solid plan. The Palabe Wealth team helps clients focus on what really matters: long-term financial success. With a thoughtful approach to investing and a commitment to keeping your goals front and center, we can help you stay the course when market volatility hits. Would you like to talk about your financial plan? Schedule a 20-minute introductory phone call or call us at 847-249-6600 to learn if we are the right fit for your financial goals. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. 

No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.