Market Volatility: Why It Pays to Be Cool

As an investor, it may be hard not to get emotional about ups and down in the markets. After all, it's your hard-earned money strapped into that wild ride. But letting you emotions guide your investment decision may be exactly the opposite of what you should do. When the markets are volatile, thinking carefully before you react can keep you from making a major blunder.

Think First

It's a rare individual who can stay calm and not panic when the value of an investment portfolio takes a sudden nosedive. Even sophisticated investors may feel queasy about a sudden plunge in their portfolio's value. But, before you make any changes, consider all the time and thought that went into choosing your investments and asset allocation. Also consider that you are investing for the long term. Unless there are solid reasons not to, sticking with your original investment strategy may be the best place for getting you through the turmoil.

Don't Neglect The Past

Short-term volatility has always been part of the stock market, so it's important to avoid putting too much emphasis on recent activity without considering long-term market performance. Don't base you investment decisions only on current market conditions. Instead, look at the market's historical performance to give you perspective. Even a quick glance will tell you the both bull and bear markets have occurred over the years, so whatever is happening today may be different tomorrow.

Follow Through

You may have legitimate reasons to sell during a downturn. but for some investors, the idea of selling a losing investment conjures up feelings of regret or embarrassment. If you avoid those negative feelings by doing nothing, you could end up losing even more or your original investment. The solution? Once you're made a decision to sell an investment - and you're sure it's the right one - don't hesitate to act.

Believe In Yourself

Your personal investment goals and the strategies you use to reach them are yours and yours alone. Remind yourself of that when the "crowd" is doing something else and you're tempted to follow along. After your financial professional has helped you design an investment approach that fits your individual circumstances and objectives, you won't want to hop on the bandwagon just because your coworker, neighbor, or brother-in-law is doing something different. Ask for professional guidance before you consider making changes.

Relying on reason rather that emotion during fluctuating market condition can prevent serious investment error and put you ahead in the long run.