3 Keys to Succeeding in Volatile Markets

Discipline, diversification, and guidance are the keys to surviving—and thriving—during big market swings

By: Robert S. Watson, Senior Financial Advisor, M&T Securities, Inc. and Joseph Iudica, Financial Advisor, M&T Securities, Inc.

As an investor, you probably felt like you were on the proverbial rollercoaster this past year. That extreme market volatility—and the expectation of more to come—likely won’t make a big difference in your long-term plans. But the volatility can lead you to make emotional decisions that can keep you from reaching your goals.

That’s why it’s vital, especially in turbulent times, to stick to investing fundamentals, such as: being disciplined; being diversified, and getting guidance.

The importance of discipline

When markets plunge you may want to sit on cash until the markets improve. It’s a common response. But no one can predict the future. And keeping that cash on the sidelines can lead you to miss out when the market surges.

It can be hard to maintain your long-term plan when markets are fluctuating. Sytematic investing—money automatically goes into a series of investments every pay period—can help. In fact, you may already be doing a form of this in your 401(k) or other employer-sponsored plan.

That same approach—automatic investments on a monthly basis—should also be part of your broader financial plan. In topsy-turvy markets, it can play an important role in dampening the impact of volatility on your investments. By making investments when the market is doing well and when it’s going down, you can help manage, and even take advantage of, volatility.

Staying focused on diversification

One principle that remains constant in all market conditions is diversification. Invest in a portfolio that includes a wide range of stocks, sectors, and asset classes. But diversification also can be easy to forget when certain sectors vastly outperform the rest. Those eye-popping returns win a lot of headlines, and can make you feel like you’re missing out.

But chasing a hot sector or stock can pose a major risk to your long-term plan. Not only does a concentrated portfolio increase your risk of loss, it also increases the risk that you’ll miss out on opportunities elsewhere in the market. That’s because whenever one part of the market is outperforming, there’s a good chance that other sectors offer valuable opportunities.

Don’t go it alone 

In this age of online brokerages and DIY investing platforms, resist the urge to do everything yourself. While these developments offer new opportunities, they also bring new risks. When you do everything yourself, it’s easy to forget fundamentals like discipline and diversification.

Consider working with an advisor. In addition to helping you make a plan, find tax advantages, and offer market insights, he or she can offer something more valuable. An advisor is there to listen, and discuss your fears, or any opportunities you may be considering. More important, your advisor can remind you of the reasons for the plan you have, and why you’re in the market to begin with.

Your goals, perspectives, and level of risk comfort are unique. And there are political and economic developments that may make you want to scale back the amount of risk in your portfolio. That’s when an advisor can help you create or adjust your plan in a way that makes sense in the long run, while helping you sleep better at night.

Finding opportunity and guidance amid volatility

Volatile markets can be stressful. That’s why discipline and diversification remain two essential principles to remember. But an equally important thing to remember is that you don’t have to go it alone. The right partner can make a difference when it comes to sticking to a plan and succeeding, through every kind of market.

Senior Financial Advisor Bob Watson and Financial Advisor Joe Iudica specialize in helping individuals, families, and business owners navigate life’s transitions and achieve their financial goals. With a combined 50 years of tenure and experience in the financial services industry, Bob and Joe are well-versed in developing strategies that are targeted to each client’s unique goals,  bringing clarity to complex situations. Contact Bob at 302.651.8646 or rswatson@mtb.com or Joe at 302.651.8910 or jiudica@mtb.com to discuss your personal investing needs.

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This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

Investing involves risks and you may incur a profit or a loss. Asset allocation/diversification cannot guarantee a profit or protect against a loss. There is no assurance that any investment strategy will be successful.