Provided by RBC Wealth Management and Thomas J. Powers
When it comes to investing, pullbacks and corrections (declines in stock prices of at least 10 percent from their recent highs) are routine, although they don’t usually feel that way as they happen. As an investor who is depending on your investment portfolio to help meet some key goals, such as a comfortable retirement, how should you respond to market turbulence?
It’s important to remember that a period of market turbulence may not be the best time to make any drastic changes to your portfolio. But staying calm doesn’t mean being inactive. Keep in mind that a market correction, by definition, means that prices have dropped for most stocks, including the ones that represent strong companies with favorable prospects. And a correction is often accelerated by investors selling shares to supposedly cut their losses. But when prices are down, it’s actually a good moment to buy. Now may be an excellent time to purchase quality stocks, at bargain prices.
You also may want to take this opportunity to consider whether you need to further diversify your holdings. In a downturn, just about everybody takes a hit, but if you were affected particularly strongly, you might be over-concentrated in just a few types of stocks. You can help reduce the impact of volatility on your portfolio by owning a mix of domestic and international stocks, bonds, government securities, certificates of deposit (CDs) and possibly even “alternative” investment vehicles, including real estate and commodities, such as precious metals.
Ultimately, you don’t have to scuttle your long-term investment strategy merely on the basis of a few bad weeks or months in the market. If you’ve created a strategy that reflects your risk tolerance, time horizon and financial goals, and if you make needed adjustments over time, you’ll give yourself the ability to look past today’s headlines.
This article is provided by Thomas J. Powers, a Financial Advisor at RBC Wealth Management.
The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.