Recent headlines may have you feeling uneasy about your investments. Markets tumbled in reaction to the COVID-19 pandemic. The spread of this virus has left many investors feeling nervous about the broader economic and market implications.
Understandably, it is difficult not to react to the uncertainty and market volatility. Yet, making changes to investment plans during a crisis is rarely a recipe for success.
While the global reaction to contain COVID-19 will have an impact on economic growth, current news headlines about the performance of various stock markets or indices may be inconsistent with the actual performance of certain investors’ portfolios. This is because most diversified portfolios are made up of different asset classes, including stocks, bonds and cash. They are also diversified by geography and may hold stocks and bonds from various countries. And so this diversification provides some protection from the ups and downs of the stock markets. For example, if you held a diversified mix of stocks and bonds (let’s say 50 -50), you would be experiencing smaller declines than someone who held 100% in stocks.
Investors may be thinking: should I sell my stocks and move to bonds? In periods of market volatility, stock prices are likely to be low and bond prices could be high. In this scenario, the move to bonds could result in further losses if interest rates go up.
Every year comes with its own set of events that may give investors a reason for concern and markets have always proven resilient. While the reaction to these events is often swift, in the past the rebound has often occurred quickly as well.
The key to investment success is not to try to time the market or predict the future. It is about creating a well-structured plan that aligns to your personal financial goals, along with having a well-diversified investment portfolio to support that plan. This way, you will be able to remain committed to staying the course through any market environment.
Want to learn more about investing in volatile markets? See our articles on being a disciplined investor.