Volatility can be an investor’s worst enemy. It often leads to bad decisions, even in good markets. Global stocks rose most years since 1980 and delivered annual returns of 9.3% on average. Yet they often dropped sharply at some point during most of those years. And that makes investors nervous, leading to the classic mistake of selling in a falling market and locking in losses.
So how can you combat volatility? Look for active portfolios with high conviction in high-quality stocks that have strong long-term potential, even when markets are bumpy. And don’t rely on passive portfolios to mitigate risk. Funds that track an index aren’t risk free. When markets fall, they fall.
Market volatility isn’t likely to go away soon. So, to position for a world of higher inflation and uncertainty over interest rates, build a strategy that can provide stability in turbulent times to keep you calm, confident, and moving toward your long-term goals.