I’ve written about how my aunt calls me when the markets worry her. Needless to say, she’s been calling a lot.
Rising interest rates. Sinking oil prices. A strong dollar and weak earnings. Greece, China and Puerto Rico. The news headlines make hay of these swings, and investor emotions can ride along with the dramatic stories. The stock market will spike one day, you feel optimistic and invest, then the market drops back down the next day.
Earlier this year, we talked about how the markets would seem more volatile than in recent past. Well, they have delivered on that forecast. After years of relative calmness and steadily rising returns, markets have been jumpier lately.
Remain calm and avert your eyes
Turn your gaze away from the headlines, and instead, take a good look at your investments. It is what you do within your portfolio that matters.
Here are four strategies to help your investments navigate the turbulence:
- Diversify. Market cycles typically move in different patterns. I will save you the academic rationale, but you may want to have some investments zig while others zag. This is the crux of what we call diversification. So the most important way to manage portfolio risk overall is to diversify across stocks, bonds, geographic regions and sectors. Getting this mix right is really important. If you’re new to investing, a low-cost way to achieve a balanced portfolio in one single trade is through a diversified iShares Core Allocation exchange traded fund (ETF). If you already have an established portfolio, review your holdings regularly and talk to your financial planner about diversifying.
- Go min vol. If you want broad market exposure with potentially less risk, minimum volatility ETFs might be a good fit . These funds seek to track market indexes with a mix of historically less volatile stocks, so you can still invest in global, U.S., developed international and emerging markets with potentially fewer bumps in the road.
- Bargain shop. Who doesn’t like a good discount? Truth is many U.S. stocks have gotten quite expensive, and it has been harder and harder to find true value. So when the market drops, it can be a great buying opportunity. Talk to your planner about potential deals in the market that can complement your long-term portfolio.
- Stay put. If your investments are in good shape, make no sudden moves. Over time, markets tend to balance out, and you’re likely to do better staying invested in a diversified portfolio than engaging in frenzied, sometimes expensive, trades.
As I do with my aunt, work your way through the four steps above to ensure your investments are sturdy. Successful investors don’t panic over headlines. They stay educated and stay invested. Learn more about what to know and what to do from the mid-year update of The BlackRock List, and get back to enjoying your summer.
Heather Pelant is Personal Investor Strategist for BlackRock. She is a regular contributor to The Blog.