Investing in volatile market requires patience

• Published October 15, 2008

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Volatile markets can be nerve-racking. Keep in mind that while no one can predict the markets, there are several things you can do to help manage your portfolio’s risk during periods of market and economic uncertainty. A few of my suggestions are:

Have an investment plan. Having a personal plan about how you will address volatile markets can help you set and achieve realistic goals during periods of volatility and better prepare you to achieve your long-term financial objectives.

Recognize opportunity. Your attitude toward the market can have a big effect on the decisions you make during market downturns and might even push you to make irrational decisions. Recognize that a down market could present a great opportunity for you to take advantage of lower unit costs and grow your portfolio.

Keep investing. Investing on a consistent basis, even during down markets, can help lower your overall costs and ease your anxiety. One of the best methods to do this is dollar cost averaging, which means investing a preset amount on a preset schedule and sticking to that schedule regardless of market conditions.

Diversify your portfolio. “Don’t put all your eggs in one basket,” is good advice to follow when investing. Practicing portfolio diversification can reduce your overall risk. Investing in mutual funds, which are typically a diversified investment, is one way to achieve portfolio diversification.

Don’t jump ship. You might be tempted to leave the market and wait for volatile conditions to improve. However, no one can predict the market, so how will you know when it’s the right time to exit or re-invest? Attempting to time the market could be detrimental to your financial plan and long-term goals.

Plan with a financial advisor. Having a sound financial plan is a good way to manage market volatility. A financial advisor can offer a more complete understanding of your financial position, not just your portfolio. They also have access to important research, information and years of experience to draw from to help you create a unique plan that fits your goals.

Be patient. Keep in mind that volatile markets are a natural part of the investment cycle. In the meantime, continue to focus on your long-term investment objectives rather than short-term shifts in the market.

Ann Cooke is a Financial Advisor in Olympia and can be reached at 360-943-2300 or www.fa.smithbarney.com/cooke.