Untitled Document

Navigating Market Volatility

Bull and Bear

Markets 101
Market Volatility

Do's and Don'ts
How Your Financial

Advisor Can Help


Navigating Market Volatility

You see that irresistible slice of chocolate layer cake in the fridge, but you’re totally committed to your goal of eating healthier this year. So you overcome temptation and reach for the yogurt instead.

Being a successful investor often means overcoming the temptations of the market and sticking with a plan based on your future goals. And as tempting as it may be for investors to sell their stock investments during times of market volatility, doing so may prove to be counter-productive over the long term. 

Putting market volatility into context and following some time-tested do's and don'ts can help you remain on course.  



Bull and Bear Market 101

bull and bear markets

Understanding bull and bear market basics is a first step to keeping calm during periods of market volatility. Stock performance is cyclical in nature. While each market cycle is unique, bear markets often begin when stocks become too expensive and there are more people looking to sell stocks than buy them. Because supply significantly outweighs demand, share prices drop and continue to do so for a prolonged period of time. A market drop of 20% or more over a two-month period or longer is called a bear market.

When the markets reach a point when investors start thinking that stocks are becoming underpriced, they start buying again and a recovery begins. A bull market is when the market rises at least 20%. Based on past bear markets, upturns have been generally stronger and lasted longer than downturns.  


Market Volatility FAQs

What is a market correction? 
A correction is a price decline of at least 10% in stocks, bonds, commodities, or indexes from a recent high.

Corrections are often temporary events during a bull market, but can also indicate the start of a bear market or recession.

When was the last stock market correction? 
Prior to 2016, the last correction was in August 2015, and was mainly fueled by fears of a slowdown in China. The one before that was four years earlier and was driven by a credit rating downgrade of the United States by Standard & Poor’s and fears of a deepening debt crisis in Europe. There have been 22 corrections in the U.S. markets between 1946 and 2015, with an average decline of 14%. 

How often do corrections occur, and how long do they last? 
Corrections are not uncommon and vary in frequency and length. There have been periods with more than one correction in a single year and periods of several years without a correction. On average though, corrections last about 5 months. Many investors and analysts look at corrections as a necessary ‘evil’ to cool off an overheated stock or bond market. Some also believe corrections return overpriced stocks closer to more realistic values.

Source: S&P Capital IQ

What’s the difference between a correction and a bear market? 
While there are several ways to define those terms, generally speaking a bear market is a drop of 20% or more over a two-month period vs. a correction’s 10% to 20% drop.

How long do bear markets last? 
There have been 12 bear markets since 1946, averaging 12 months in length. The average bear market decline was 32%

Does a correction always lead to a recession? 
Not according to history, which shows that while all recessions were preceded by corrections or bear markets, there were nearly three times the number of 10%+ market declines than there were recessions since 1948 (Source: S&P Capital IQ).

For more answers to your questions specific to navigating market volatility check out the complete Q&A: Pullbacks, Corrections, and Bears...Oh My! 





Market Volatility Do’s and Don’ts  

There is no way to know for certain what will happen on any given day in the market. But, there are some time-tested tips you can choose to adhere to during a volatile market. 

Diversify to cast a wider net

Do diversify your portfolio

The best-performing asset class changes over time. Building a diversified portfolio helps ensure that at least a portion of your portfolio will be in the right place at the right time and has the potential to reduce risk and enhance returns.

Don’t forget about fixed income diversification

The fixed income market has different asset classes, each with their own set of unique characteristics, risks, and tax implications.
They react differently to economic and interest rate changes, making it important to diversify across them.

Keep in mind, diversification does not assure profit or protect against loss in declining markets.

Anchor your goals for prudent, not emotional investing

Do consider these 4 principles of prudent investing

1. Set clear, realistic, long-term goals

2. Keep investing, regardless of market fluctuations

3. Diversify – cast a wider net

4. Select quality investments with professional advice

Don’t invest using emotions

 Everyone wants to “buy low and sell high,” but most investors do exactly the opposite because investment decisions are often driven by emotion. Realize that emotional investing can take you off course.

Ride the waves to avoid missing rebounds

Do consider dollar-cost averaging

Dollar-cost averaging, the practice of putting the same amount of money in the same investment option consistently, regardless of the market performance (price) of that investment, can help market volatility work in your favor.

Don’t miss the rebound

Rebounds matter, and missing them does too! Investors who choose to sit out during times of volatility essentially miss being “in” when the market rebounds. By the time an investor feels safe to be “in” again, often the opportunities presented by rebounds have already passed.

Stay the course by staying invested and periodically rebalancing

Do rebalance your portfolio

Over time, your portfolio may have shifted away from your initial goals. Rebalancing your portfolio simply means you are bringing your assets back to their intended allocations, so that your portfolio stays consistent with your goals and objectives.

Don’t try to time the market

“Time in” counts, not “timing”, when it comes to the market. Investors who pull their money out of equities in volatile times may risk missing some of the stock market’s biggest gains. Some of the market’s best days come right after periods of steep declines and missing them can have a significant negative impact on long-term results.

For a complete guide to weathering market volatility, including charts and illustrations of real examples from past years, download the kit below to discuss with your financial advisor:
Kit: 7 Tips to Weather Market Volatility


How Your Financial Advisor Can Help 


Now is a good time to connect with your financial advisor to ensure that you're taking the best steps to keep your portfolio on track to meeting your goals.

Your financial professional can help answer other important questions you may have such as:

→ “What is causing the recent market volatility, and how long might it last?”
→ “Given the market conditions, will I still be able to reach my goals?”
→ “What is the impact to my portfolio, and how should it be adjusted?”

It’s likely that your advisor has been through unpredictable markets before and can discuss whether current conditions warrant a change in your investment strategy.

Download the checklist below to review with your financial professional:

Your Financial Advisor Can Help Put the Headlines Into Perspective

More resources on market volatility:
Three Investment Strategies For Volatile Markets
Kit: 7 Tips to Weather Market Volatility
Infographic: 7 Tips to Weather Market Volatility
Pullbacks, Corrections, and Bears...Oh My! 



0289230-0003-00 Ed. 05/16