After a strong market performance in 2020, investors should be prepared for a rockier ride ahead in 2021. A recent analysis by Morgan Stanley predicted that following the S&P 500’s 68% returns from March 2020 to the end of the year, “stocks likely need to take a breather, much as they did in the second quarter of 2010. […] We should therefore brace ourselves for a lot more stock market volatility in 2021.”
So, what should investors do this year as they brace themselves for swings in the market? I asked financial experts to find out their best advice.
Focus On Your Long-Term Goals Rather Than Short-Term Fluctuations in Your Portfolio
“Seeing your portfolio balance fluctuate dramatically is worrisome for any investor, especially newer investors and older investors who are near or in retirement. But before you panic, remind yourself that shock and surprise are hallmarks of the stock market,” said Carrie Schwab-Pomerantz, SVP at Charles Schwab. “The urge to do something can be overwhelming, but the problem is you often wind up making things worse, either by selling too low immediately after a market downturn and missing out on future gains, or by chasing performance after markets take off. It might sound counterintuitive, but often the best strategy is to do nothing.”
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Schwab-Pomerantz said it’s better to stay focused on your long-term goals than worry about market swings.
“Remind yourself of your long-term goals,” she said. “Not looking at your portfolio too frequently can actually help. While you may be able to look at your investments at any time, it’s often a good idea to match your ‘look interval’ with your investment time horizon.”
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Don’t Try To Time the Market
“People instinctively want big gains without having to bear losses. However, trying to avoid the pain of losses can lead people to not taking enough risk, indiscriminate selling, or holding onto a risky or losing investment for too long,” Schwab-Pomerantz said. “These types of behaviors can have all sorts of negative consequences, from not being able to reach your financial goals to a large tax bill. Attempts at timing the market can often backfire.”
Since you can’t control the market, focus instead on what you can control — your asset allocation and diversification.
“Your asset allocation should reflect your willingness and need to take on risk,” Schwab-Pomerantz said. “Diversification adds another level of control because all of your holdings will likely not go up and down at the same time, or at the same level.”
Don’t Give Into Investing FOMO
“Don’t get caught up in the day-to-day talk on social media or feel that you are missing…
Go to the news source: How To Survive a Volatile Market in 2021