Take a look back at history and you can find multiple instances where there has been a volatile time in the stock market.
Volatility can be brought on by a number of different events, some good and some bad. Those events could be similar to events a decade ago – like election years – or they could be completely new events like the coronavirus.
When an individual decides to make an investment there is risk associated with it. Whether it is inflation risk, business risk, interest rate risk or market risk, an investor has to become comfortable with taking risk. That's why we make investments, to take some risk to achieve a specific goal and to better ourselves. Every investor has a different risk tolerance and some investors are willing to take on more risk than others. That is why there is an array of investments to choose from.
When you think about investing in stocks, market risk is usually one of the biggest risks that an investor will face. Market risk involves volatility. The questions to ask yourself are: How much of that risk are you willing to take? How much volatility can you handle?
Some investments are very volatile, some are not. Think of it as riding a rollercoaster. There are ups and downs with rollercoasters, some are big and some are small. Take a look at how amusement parks are designed. Amusement parks have been built to accommodate the wide-ranging preferences of the consumer's comfort level by offering many different ride options. The world of investing has done the same thing.
Volatility has shown its face again in 2020. Volatility has always been around with the stock market but can be subtle or tame based on economic or financial conditions. There can be numerous items or events that have caused the spike in volatility, from interest rate changes to the upcoming elections to the coronavirus. Now the question is, what can you do about it?
Having a plan will help make most things easier. If you're building a house, going on a road trip or creating an investment strategy, having a plan is a good place to start. If you take the time to build a plan, whether it is on your own or with your financial adviser, it can help take the pit out of your stomach that the stock market may have put there. Depending on where you are in your plan, the events to start 2020 could be simply a blip on your radar or something that you planned for.
Just like the rollercoaster, the stock market will go up and it will go down – sometimes fast and sometimes slow – but having a plan will help get you through the unsettling times. Stick to your plan and keep moving along.
Michael Witsman, ChFC, is a financial adviser with the wealth management division of Morgan Stanley in Springfield.
The views expressed here are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.