7 Steps to Manage Market Volatility

Managing market volatility isn’t just about avoiding losses; it’s also about setting yourself up to grow and protect your wealth over the long haul. As unsettling as market swings can be, they're part of investing. But they don't have to derail your financial goals. In fact, volatility can open doors to opportunities when you approach it thoughtfully.

As someone who frequently helps clients navigate through turbulent financial waters, I've found that taking a clear, practical approach can make all the difference. Here are seven steps you can use right now to feel more confident, calm, and prepared, even when markets get choppy.

1. Clarify Your Goals and Comfort Level

Before dealing with market volatility, get crystal clear about your financial objectives. You might have several goals in mind like retirement, passing on wealth to family, supporting charities, or preserving your legacy. Each of these goals might require a slightly different strategy.

Take a moment and think about:

• When do you plan to use your money?
• How comfortable are you with seeing your account balances temporarily dip?
• Are you focused on growth, income, or simply protecting what you have?

Knowing the answers helps ensure your portfolio matches your goals, so you'll worry less when markets bounce around.

2. Diversify Your Investments—Thoughtfully

We've all heard about the importance of not putting all your eggs in one basket, but real diversification means more than holding just a variety of stocks and bonds. It’s about spreading your investments across different areas, such as stocks, bonds, cash, real estate, and even alternative investments like private equity or hedge funds.

Good diversification can:

• Smooth out the ups and downs.
• Limit big losses in any one area.
• Help you stay invested through market challenges.

For instance, alternative investments often don’t move directly in line with stocks, making your portfolio more resilient during turbulent times.

3. Make Adjustments—But Don’t Panic

While it's essential not to panic-sell during downturns, making thoughtful, strategic adjustments can be beneficial. Market drops sometimes create attractive opportunities to rebalance your investments. If some assets have performed exceptionally well, you might consider selling some of those gains and reinvesting into undervalued areas.

For example, a sharp market drop can present high-quality investment opportunities at discounted prices. By thoughtfully reallocating resources, you position yourself better for recovery when markets rebound.

4. Keep Enough Cash Handy

Having enough liquidity (cash or assets you can easily access) is critical during volatile markets. This prevents you from being forced to sell investments at bad times. A good liquidity strategy might mean:

• Keeping enough cash for short-term expenses.
• Using short-term fixed-income investments or money market funds for easy access.
• Setting up credit lines to temporarily tap funds without disrupting long-term investments.

With enough liquidity, you can ride out rough patches comfortably, knowing your long-term plan remains intact.

5. Take Advantage of Tax Opportunities

Believe it or not, market volatility can sometimes benefit your tax situation. Down markets present great opportunities for tax-loss harvesting, where you sell investments at a loss to offset gains elsewhere, potentially lowering your overall tax bill.

Market drops might also provide excellent timing for converting traditional IRA assets into Roth IRAs, potentially saving you taxes over the long term.

Your Allworth advisor can work with you and your tax professional to help identify and implement these opportunities, putting you in a stronger financial position moving forward.

6. Consider Protective Strategies

Using protective investment strategies, sometimes called hedging, can also help smooth out market volatility. These strategies can include tools like options contracts, structured products, or specific ETFs designed to cushion potential losses.

A few practical examples are:

• Protective puts or covered calls, which generate income or soften downside risk.
• Structured notes or annuities, which can help you participate in market gains while limiting losses.
• Buffer ETFs, which can limit losses on the downside while allowing you to still participate in growth.

These strategies aren't for everyone, but they can provide comfort during volatile times, especially if you're concerned about significant short-term losses.

7. Stay Calm and Think Long-Term

Finally, the most powerful tool you have to manage volatility is perspective. History shows us that markets trend upwards over time, and downturns, no matter how sharp, have always been temporary. Keeping a long-term view helps prevent emotional decisions that could undermine your financial goals.

Always remember:

• Volatility is normal and expected.
• Trying to time the market rarely works out well.
• A steady, disciplined approach almost always beats reactive decision-making.

Bringing It All Together

Market volatility is stressful. It’s human to feel anxious when the markets bounce around. But volatility itself isn't your enemy. Instead, it can create valuable opportunities for patient, thoughtful investors.

At Allworth Financial, we help you build a personalized investment strategy that withstands market ups and downs, turning volatility into opportunities for growth, preservation, and legacy building.

Volatility will always be part of investing, but it doesn't have to derail your financial plans. With the right approach, you can feel confident and secure no matter what the market brings.

This information is meant for educational purposes and not as direct tax or legal advice. Rules and regulations can shift anytime, so it’s always best to consult a qualified tax advisor, CPA, or attorney for guidance tailored to your specific situation.