None of us like investment volatility. It can cause fear and frustration. But perhaps there is a positive in the midst of the volatility.
Winston Churchill said, “A pessimist sees the difficulty in every opportunity. An optimist sees the opportunity in every difficulty.” Let me add my two cents: “The negativist only sees the difficulty.”
I have learned that we need both optimists and pessimists. Sometimes the optimist does not give enough attention to the inevitable challenges. On the other hand, sometimes the pessimist does not see the potential benefits clearly enough. Ultimately, the best plan of action is developed by gaining the perspective of both the optimist and the pessimist.
In the same way, the proper recognition of both the risks and rewards facilitates sound decision making when developing an investment strategy.
In our opinion, there are several ways to use the inevitable market volatility to your advantage:
- Prepare for the inevitable: Recognize that the markets fluctuate. But with broad, global diversification, it is unlikely that an investment portfolio will experience a permanent loss. If you have a long-term time frame, do not let short-term market fluctuations derail your plan.
- Focus on what you can control: None of us control the stock market, interest rates, or inflation. We can’t control who is elected to office or how much money the government spends. But we can control our emotions, our investment strategy, our spending habits, our investment deposits, and our personal debt.
Don’t be a negativist who only sees the risk. Instead, put the inevitable market fluctuations into a proper long-term perspective.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.