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12.08
Managing
Market Volatility
By Larry
N. Grogan
Market volatility is often
referred to as a normal market occurrence.
However, when it involves your money, it
takes on a new perspective. It can cause
sleepless nights, concerns about retirement, and
a sense of hopelessness. There is no guaranteed
solution to managing market volatility and the
stock market, but the following tips can help.
Where is your Money Invested?
You need to know exactly where
your money is invested. In recent weeks, we have seen several world-recognized organizations be
taken over by the government, file for
bankruptcy, be purchased by other firms, and on
the brink of financial disaster. Asset
allocation is a key and fundamental investment
principal that is as critical today as it has
ever been.
We have all been taught not to
put all of our eggs in one basket. Asset classes
perform differently under different market
conditions. Investing in combinations of stocks,
bonds, and cash can assist you in managing
market risk and, consequently, your portfolio’s
performance. Typically, when one asset class
decreases, another increases. Although this is
not always the case, proper asset allocation and
diversification may aid in stabilizing your
portfolio.
A professional portfolio review
will enable you to know where your money is
invested, evaluate the risk in your portfolio,
and assist in asset allocation and
diversification.
Bull Markets have Lasted
Longer
As painful as it may to be
invested during a bear market, history shows us
that bear markets are short lived when compared
to bull markets.
Past performance is not indicative of future
results
Source: Thomson Financial
Careful analysis of this chart
should also warn us about trying to time the
markets. Some investors, even those for whom
retirement is still many years away, frequently
shift their money in and out of the stock
market. They’ll get out when they fear a crash
and get back in when they expect a boom. The
problem with trying to time the market is that
no one can consistently predict the short-term
events that push the market up or down. It’s
better to have an investing plan adjusted for
your goals, time frame, and risk tolerance that
diversifies your investments, allocates them
among different asset classes, and rebalances
your portfolio.
Buy Low, Sell High
Market volatility creates
opportunity. An efficient strategy during market
volatility is to buy when stock prices are going
down. Because no one can predict market bottoms,
the most effective method of buying during
market downturns is to dollar cost average.
Dollar cost averaging buys shares at regular
intervals during an investment cycle. If prices
are high, you buy fewer shares. If prices are
low, you buy more shares for the same dollar
amount. However, over time, a consistent
purchase of stock may result in a lower average
price per share. Depending on your particular
financial situation, dollar cost averaging may
be an appropriate strategy to take advantage of
market volatility.
Don’t Focus on the Short Term
When we invest, we tend to
invest for the long term. Even if you are about
to retire, you still need to invest for another 20
to 30 years or more. However, market volatility can
cloud our strategies and short-term results
can blur our focus. Understand your
goals, your risks, and your time horizons.
Always keep your eyes on the long-term goal.
It’s OK to modify your portfolio, but understand
your reasons and know what you are trying to
achieve.
Efficient Investing
Working with a financial
professional, you may discover that there are
some areas of the market that have performed
better than others. It may also have altered
your asset allocations. Rebalance your
portfolio, use dollar cost averaging, along with
efficient investment strategies, and maybe
market volatility could work to your advantage,
and possibly improve your long term
opportunities.
Seek Advice
Investing can be complicated and
is often very confusing. The worst thing you can do
is to ignore your investments. Professional
advisors can assist in managing your assets and
provide guidance that may be critical for your
financial freedom. Do not be shy about seeking advice
on how to improve your investment portfolio.
Grogan Advisory Services provide
investment services, financial planning, and
advisory services. Contact Larry Grogan at
larry.grogan@efs529.com or 518.899.6090 for
assistance.
Past performance is no guarantee of future
performance. Investors should carefully consider
the investment objectives, risks, charges, and
expenses of any investment before investing.
Securities offered through Medallion Investment
Services, Inc. Member FINRA/SIPC Investment
Advice offered through Medallion Advisory
Services, LLC* Insurance products offered
through Medallion Insurance Services, LLC*
Wholly Owned Subsidiaries of the TMG Holding
Company, Inc., T/A The Medallion Group, Grogan
Advisory Services and TMG Holding Company are
not affiliated companies.
Larry N. Grogan is president
of Grogan Advisory Services, an independent
financial services firm in Malta, N.Y. Comments
may be submitted to
todaysengineer@ieee.org.
Opinions expressed are the
author's.
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