Why should you stay invested in volatile markets?

If you have stock market investments you have good reason to be feeling anxious in 2018. Markets are on a roller-coaster ride right now with prices careering up and down. This volatility is being driven by a variety of factors. If your stocks are falling sharply, should you protect your nest egg by pulling your investments out of the market altogether? It might be tempting but there are some good reasons why this is not the way to go.

Volatility is inevitable, why else would the disclaimer about risk be so heavily emphasized on the websites and literature of investment managers? Markets are in constant flux, moving up and down incessantly and sometimes that yo-yo effect will be more pronounced than at others. Market swings can be unnerving, but that should not distract you from staying focused on your financial goals. That doesn’t mean you should panic. It's hard not to panic whenever the stock market takes a nosedive. You are wondering whether to go to cash or stay the course, the answer is stay invested, if you decide to sell, how you know the exact time to exit the market? 

That doesn't mean any fear factor you are feeling is not real. So are the scary memories of past downturns like the financial crisis of 2008. In fact, at times of extreme volatility, many investors overreact and bail out of the market altogether, or they engage in what's called the "Ostrich effect" and essentially do nothing. Its time in the market, not timing the market, that counts.

Volatility tends to make investors feel uncertain and fearful about what could happen next, and that often prompts them to make rash decisions that aren't ultimately in their best interests. The best thing to do when the markets get turbulent is to take a step back and ask yourself what your purpose for investing was in the first place. How can you thoughtfully adjust your investment strategy to stay on track toward achieving your goals? Investors should keep their focus firmly fixed on the long term horizon and ignore knee-jerk reactions to market volatility. While these volatile periods may seem important right now, over years they become mere blips on the graph. 

History shows how the market has bounced back in the past. You probably know the old financial industry saying: past performance is no guarantee of future results. That is certainly true, but it is also true that the major indices have staged some impressive recoveries when confronted with turbulence. 

The point is clear, we can’t control what happens in the markets or in the economy, but we can control our own investment decisions and our temperament. If your investments align with your goals, timeline and risk tolerance, then there may be no reason to make changes to your portfolio when the markets experience volatility.

"Choosing to stay invested can be a great option if you're confident in your investment strategy."