Manage market volatility with asset allocation.Submitted by Wealthcare Solutions LLC on October 20th, 2015
Global stock market volatility during the month of October rattled the confidence of many investors Stock market volatility and the temporary pullbacks in valuations that come with it are normal and should be expected by investors. Since March of 2009 the S&P has fallen more than 5% on fourteen different occasions.
“Recency bias” is a term that is used in behavioral finance that refers to investor’s tendency to extrapolate recent events into the future indefinitely. Market sentiment can swing quickly between fear and euphonium so it is important for investors to maintain a long-term perspective throughout market cycles. Dealing with market volatility can be very challenging for many investors and often leads to an inclination to sell at inopportune times. Instead of reacting to this volatility by attempting to time the market, as long as your investment objectives have not changed it is best to maintain your investment strategy.
At Wealthcare Solutions, LLC we follow the basic tenants of Modern Portfolio Theory which acknowledges that a properly diversified portfolio using asset allocation can reduce the risk of loss and over time generate consistent returns. Diversification is achieved not only between asset classes but also within asset classes, which further mitigates risk by dispersing it along the spectrum of available investment options.
By keeping a cool head and maintaining your investment strategy, rebalancing on a periodic basis allows you to benefit from market volatility by trimming positions that have appreciated while purchasing additional shares of positions that are temporarily out of favor.
Over the long term you will be rewarded for staying on course and not letting your emotions regarding market volatility get in the way of achieving your long-term investment goals.
Feel free to contact us if you have any concerns about the recent market volatility and how it may impact your long-term investment goals.
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