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Stay the Course in Volatile Times

With the market’s volatile start to the year, it’s understandable why investors may be concerned. This continued volatility is primarily due to persistent inflationary pressures, higher commodity prices and the recent geopolitical crisis. When it comes to long-term investing, it’s often the fear of the unknown that causes individuals to make emotionally based decisions that may have detrimental effects on their portfolio.

Below are three strategies that may help when markets get volatile:

The Importance of a Diversified Portfolio

Times of increased market volatility come as an important reminder to maintain a diversified portfolio. This may decrease risk while simultaneously increasing the potential for investment returns. Diversification may reduce the severity of market fluctuations since different asset classes have varying degrees of correlation with each other and, therefore, experience different returns. Holding a variety of asset classes may reduce the likelihood that any one asset class may have a disproportionate adverse effect on an investor’s portfolio.

Staying in the Market is More Important Than Timing the Market

Often the key to investment success is to stay invested as the market inevitably rebounds. For example, over the past 20 years, $10,000 invested in the S&P 500 Index has grown to over $60,000. However, if you missed the 10 best days of market performance over that time, your investment would be less than half that amount. And if you missed the 20 best days, your investment return would have been 72% lower.

$10,000 Investment in the S&P 500 Index Over 20 Years

The Power of Portfolio Rebalancing

Portfolio rebalancing can be a powerful tool for investors. It is a great way for investors to stay true to a particular risk profile and with regular frequency alter their asset allocation, as appropriate, to enable them to stay on track to meet their long-term goals. It is important to review your financial plan and risk tolerance with your Jemma Financial Advisor who will help you determine your target asset allocation, especially if you recently experienced a significant life event such as marriage, a divorce or birth of a child.

Key Takeaway

Market volatility is a normal occurrence when investing in the stock market. Importantly, having a disciplined approach and staying the course are often the best tactics for long-term success.

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