It is easy to feel good when the market is always in the positive trend, when a volatility is muted and does not bother investor staying most of the time off investor’s radar. In these times our investment strategy seems to be clear and we feel confident in our investment prowess. However, when volatility becomes topic of the day it becomes a challenge to stick to your guns. Most of us become emotional when it comes down to making a decision regarding the investments when it is a turbulent environment, rushing to sell when it low and usually to late to the game after the market already rebounded from its lows.
As mentioned in the article Participants Need Support to Weather Bouts of Volatility, “…six of the best market days occurred within 10 days of the worst days.” It is of paramount importance to keep in mind your long term goal, your investment horizon and plans for retirement. It may hurt in short term to see paper losses but if you have 15-20 years before retirement you maybe better off not pull the plug when the market is down already but rather wait patiently for its recovery. It would that the market rebound will not be missed and paper losses will be erased soon after market crash. However, if you close to retirement, then the investment strategy should be based on step by step reallocation towards income protection strategy and as in the first case any knee jerk reaction should be avoided.