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Investors: Stay Calm In This Volatile Market

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Have you just started dipping your toes in the waters of investing? Or have you been in the market for decades? No matter how new or experienced you may be, navigating the volatility of today’s market might have you questioning your sanity.

If you’re worried about your investments or how this will affect the economy on a larger scale, you’re not alone. Panic ensues anytime the stock market nosedives. However, extreme market volatility, like we’re experiencing right now, often creates chaos.

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Heightened emotions provoke investors to react impulsively to fluctuations in the market. Some choose to abandon the market altogether, while others prefer to be blissfully unaware of the situation and do nothing — a response known as the "ostrich effect" in the finance world.

Both reactions are understandable. Panic clouds our judgment and makes both decisions seem like a reasonable way to protect our investments. Except the opposite is usually true. Bailing out of the market and doing absolutely nothing isn't going to help you achieve your long-term financial goals. 

Financial markets rarely behave as we want them to, which is one of the most difficult realities for investors to accept. Periodic market volatility is inevitable.

Markets fluctuate in response to a number of situations outside our control: global events, like the recent COVID-19 pandemic, elections, natural disasters, rising interest rates, high inflation rates, etc. Moreover, stocks have fluctuated into bear market territory every six years since 1926.

My goal here isn't to speculate about the economic impact of today's volatile market, although there seems to be some good news out there. Strategists polled by Reuters believe stocks will be up from their current levels by the end of the year.

But investors must still figure out how to proceed in this volatile market without risking progress toward their long-term goals. What I hope to do in the sections below is help investors find opportunities in what otherwise may feel like a hopeless market.

Volatility Isn't a Death Sentence for Financial Gain

In uncertain times, it's easy to only focus on the negatives. You may see everything trending downwards and assume the worst, but if you know anything about the stock market's history, you'd know that it always bounces back. 

This is why you'll always hear financial consultants talking about the importance of time in the market instead of timing the market.

If you pay constant attention to the ups and downs of the market and your only motivation is identifying when to stay in and when to get out, you might make a rash decision to bail out of the market at a time when staying in would have been more advantageous. Rather than relying on short-term predictions, time and patience in the market are what can yield the best results. 

It may seem scary to face market volatility head-on, but ask yourself: What was your purpose for investing in the first place? Creating a better financial future for yourself is still possible even though the market doesn't seem to be trending in your favor right now.

Market downturns can end up producing exciting new opportunities that you may have otherwise overlooked. Thoughtfully adjusting your portfolio in a volatile market could put you on a better path to meeting your long-term goals, which is why you shouldn't be afraid of volatility. When you navigate the market with your goals in mind, you can set yourself up for success.

Market volatility isn't a rare occurrence, and accepting these inevitable fluctuations is how to stay on track towards meeting your long-term financial goals.

Take Emotions Out of Your Investing Decisions

Expecting and accepting volatility can be key to keeping your emotions out of your investing decisions. Like with any personal decisions you have to make, it's important to pause and reflect on the situation rather than immediately acting on your fear, anger, or despair.

Emotionally-driven decisions often hinder our progress because we're making a rash decision rather than one that's deliberate and intentional. It's okay to panic about the state of the market, but don't let that panic influence your investment strategy.

Step back and try to be as analytical as possible about your investment decisions. If you're not fully confident in your ability to adjust your investing strategy or reallocate your money on your own, consider seeking advice from a financial consultant. 

There is nothing wrong with adjusting your strategy to match the current market conditions, as long as it's done based on facts and not just emotions. Volatility may not lend itself to feelings of hope, but, as I've said previously, it can open up the door to more lucrative opportunities that align with your long-term financial goals.

You may be wondering why some people seem to fare so well during the most unprecedented times, but that's not by luck. The market doesn't play favorites, it's just that some individuals understand the strategies necessary for making the most out of volatility — the same strategies that are also available to you.

Approaching investing with a calm, optimistic outlook will help ensure that your investing journey is successful.