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When an airplane experiences turbulence, it can be unnerving if you’re not used to it. Still, the pilot and crew – after telling you to stay seated and fasten your seat belt as a safety measure – typically stay on course so you can reach your destination.
That’s a lesson for investors. One of the bitter truths of investing is that stocks and bonds don’t always go up. As we have seen in 2022, in fact, sometimes that selloff can be quite dramatic – and painful.
When facing bouts of market volatility, it is important to not focus on the day-to-day swings, but your longer-term investing goals. Of course, no one likes to see their hard-earned savings diminish, so investors often ask, “How should I handle market volatility?” And “Should I sell stocks when markets are volatile?” That’s why it can be so hard to accept that often the best course during market selloffs is: Do nothing.
When times are tough, we want to limit our losses. Even when things are going well, we wish we had invested more. We all fear missing out.
But when you’re investing, giving in to fear is often a losing strategy. More often than not, investors with this mindset tend to buy high and sell low as they invest more in a rising market and pull money out in a falling market.
Having said that, sometimes it may make sense to adjust a portfolio if conditions seem to suggest that you are not going to make it to your goal if markets have changed. For example, you may need extra resilience against inflation in today’s high inflationary environment. Or you may need added diversification by increasing exposures to other asset classes, like international stocks. Or for your taxable accounts you may want to keep your current strategy but sell out of funds or stocks that have declined in value to offset other taxes, a strategy known as “tax loss harvesting.” (Of course, consult a tax professional first.) Changes to a portfolio like these may actually help strengthen it for the long term.
In short, making tweaks around the edges of a portfolio may make sense. But trying to time the market to avoid selloffs is extremely difficult because of the risk of missing the rebound. Instead, focus on your longer-term investing goals.
Daniel Prince, CFA, is head of iShares product consulting for BlackRock’s U.S. Wealth Advisory Business and U.S. Head of iShares Core ETFs at BlackRock Inc.
Disclaimer
iShares ETFs are managed by BlackRock Asset Management Canada Limited. Commissions, trailing commissions, management fees and expenses all may be associated with investing in exchange-traded funds (ETFs). Please read the relevant prospectus before investing. The indicated rates or return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or operational changes or income taxes payable by any securityholder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
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