How to Invest in a Volatile Stock Market?
Volatile stock markets are a reality, but do not need to be a hindrance to building wealth over the long-term. Bloom Investment Counsel, Inc. is a Toronto-based independent investment manager who has been building wealth since 1985 through various market cycles for high-net-worth individuals, family offices, foundations, corporations, institutions, and trusts. In this article, we provide some suggestions help deal with investing during periods of stock market volatility even when there is no perfect way to foresee such periods, predict how long they will last, or predetermine the depth of decline they may cause.
1. Maintain an Emergency Fund
Ensure that you have an emergency fund to weather market downturns and any contributing economic factors that may also affect your standard of living. An emergency fund should be established that covers at least 3 to 6 months’ living expenses before you embark on investing in the stock market.
Knowing you have the security of an emergency fund will reduce your panic response and the resulting reactionary impulse to exit the stock market in a downturn.
2. Maintain Your Long-Term Focus Despite Market Volatility
Investors who remain disciplined and focus on their long-term investment objectives are less concerned about stock market volatility. Those without a long-term investment strategy may panic and be prompted to exit the stock market during downturns. They are often then hesitant to reinvest early in the market recovery phase and miss out on much of the upside.
Adhering to a long-term investment strategy follows the often-quoted credo “time in the market is better than timing the market.”
3. Employ Dollar-Cost Averaging During a Volatile Stock Market
Emotionally, it is very tempting to buy into a market dip. However, it is always better to employ an investment strategy that works in the long-term and removes guesswork and market timing decisions. Dollar-Cost Averaging (DCA) is the process of investing fixed amounts of money in the stock market at regular intervals without being influenced by short-term market performance.
By sticking to a DCA program, the temptation to try and time the ups and downs of the stock market can be removed.
4. Consider Tax-Loss Selling to Benefit from a Volatile Stock Market
There might be an upside to stock market declines: tax-loss selling. This is the opportunity to lower your tax bill by selling a stock at a lower price than you initially paid for it and applying the losses to offset taxable capital gains from stock sales where you have realized a profit.
It is important to consider the CRA rules for tax-loss selling and to work with a trusted tax professional and/or investment manager who knows your personal financial circumstances.
5. Be Sure to Rebalance During Periods of Volatility
Volatile markets can wreak havoc with your relative stock and asset class weightings. Through volatile market periods you should ensure that your portfolio allocations still align with your risk tolerance and investment time horizon to meet your investment objectives.
This usually involves selling stocks that have increased in value and adding to stocks that have lost value to get your portfolio back to target weightings.
6. Stay The Course Despite a Volatile Stock Market
Stock markets are cyclical, so it is normal for them to move up and down. When you have a well constructed, long-term portfolio driven by your objectives, time horizon and risk tolerance you can be confident in staying your long-term investment course.
Always work with trusted financial professionals to obtain the guidance you need to structure and manage your long-term portfolios.
Your Personalized Investment Portfolio with Bloom Investment Counsel, Inc.
Are you a wealthy individual, family office, foundation, corporation, institution or trust looking for a private, personalized, and hands-off approach to investing in the stock market? Bloom Investment Counsel, Inc. may be the personal investment manager you are looking for.
Established in 1985, Bloom Investment Counsel, Inc. is a Toronto-based independent, privately-owned boutique investment management firm with experience in managing in excess of $2.5B in assets over the years. We are dedicated to providing actively managed, customized Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.
For more than 25 years, we have specialized in one thing and strive to be the best at it—investing in income-generating investments, specifically dividend-paying stocks, which can help you generate income, if needed, and growth from investing in the stock market.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.