3 things investors should think about in an uncertain market

Remember that your goals — the things you’re investing for — are set by you, not by the stock or bond markets. For example, your goal might be to send your child to college or university in 10 years, or to retire in 15 years. An investment mix — the blend of stocks, bonds and cash in your portfolio — is typically designed around those goals.

Then your portfolio has a lot longer to weather ups and downs in the market and can include investments that fluctuate in value over the short term.

Then the money may need to be more safe and secure over the short term. Take a moment to think about these goals, and ask yourself if they’ve changed in any way.

Much like turbulence on an airplane, sudden swings in the market show us how comfortable with risk we really are. So how do you decide how much investment risk is right for you? That depends on both your ability and willingness to take risk — and how these relate to your goals.

This often has to do with how soon you need access to your money. For example, if you decide to retire a few years earlier than planned, you’ll likely be relying on income from your investment portfolio to fund your retirement. In that case, you probably don’t want big swings in your account balance from year to year so you may want to consider a more conservative investing strategy.

Essentially, this is how much uncertainty you can stomach. If you’re losing sleep over your investments or checking your account balance frequently, this might be a sign that you’re not comfortable with your current investment portfolio.

Let’s say, for example, you have 20 years until retirement and a stable income. Take for instance, you have a high ability to take risk but you realize you’re quite concerned about ups and downs in your investments from month to month. This means you have a medium willingness to take risk. Your true risk tolerance is whichever is lower, in this case, medium risk.

If you need to reduce your risk level, you might want to adjust your mix of investments between stocks, bonds and cash. Or, you might want to leave your mix of investments the same and adjust the type of investments you hold. For example, this could mean changing how much emphasis you place on income versus growth potential in the stocks you choose, or shorter versus longer maturities in the bonds you hold.

Remember that these changes shouldn’t be made on impulse, since lower risk can mean lower return potential over the long term. Unless you feel strongly that you’re taking too much risk, consider changing the type of investments before changing the mix of investments. 

Wobbly markets make it less attractive to invest lump sums, such as annual bonuses or family gifts all at once. Rather than investing later or not at all, you could move forward steadily with a regular investment plan. For example, say you have an annual bonus of $6,000. Instead of investing the full amount right away, you could invest $500 each month for the next year. Investing smaller amounts over time can help remove the emotion from investing and potentially reduce the effect of market ups and downs through dollar cost averaging.

This has been a volatile year so far, which gives investors a chance to reflect. Start by reviewing your situation and asking if your goals have changed as a result of market movements. Then consider your ability and willingness to take risk, to see if any changes are needed to your investments. Continue investing through a regular investment plan, which can help to reduce the effect of market movements on your ability to invest and achieve your goals.