Q: I’m losing sleep over market volatility. What’s the best way to respond?
A: It’s natural to have a reflexive reaction when markets start to act unpredictably. But before you make any decisions, it’s a good idea to step back and remember why you invest in the first place. The obvious thing about volatility is that it makes investors feel uncertain. But at the same time, exposing yourself to uncertainty is the point of investing—if there’s no risk, there’s no reward, and you might as well keep all your money in cash.
To me, you should be aiming for the right kind of uncertainty, one that’s tied to what you want your money to accomplish over the long run, not what might happen in the markets today or tomorrow. For example, you may decide that lower prices give you an opportunity to buy some stocks you’ve been considering, or that this might be a good time to sell other stocks in order to extract the most value from them. But whatever choices you make, base them on your needs, not on the market’s ups and downs.
For more insights from Michael Liersch, check out “Dealing with the Market’s Latest Roller Coaster Ride.”