5 ways to manage your portfolio through market volatility

If you're wondering if your investment strategy can handle any future ups and downs in the financial markets, take a deep breath. Here are five tips you can discuss with a financial advisor to help you get through market volatility and stay on course toward your long-term goals.

1. Diversify1

To manage risk, it may help to have a diversified portfolio that includes a variety of investments. A financial advisor can help you understand the mix, typically called your asset allocation, that might be best for your specific goals, time frame and risk tolerance. Historically, a collection of mutual funds, which may include stocks, bonds and exchange traded funds (ETFs), have offered growth and a degree of stability over the long term. Additional investment considerations may include the ownership of real estate or alternative investments. Your optimal asset allocation may include a mix of investments, ranging from conservative to aggressive, that provides the best opportunity to earn the return you need to achieve your various goals.

2. Rebalance periodically

At least once a year, take a fresh look at your portfolio with your financial advisor to make sure your asset allocation remains in sync with your goals, that there is time available to achieve those goals and that your asset allocation still meets your objectives for return and your tolerance for risk. Over time, market swings can throw your asset allocation out of balance. When this happens, you can rebalance by moving money from investments that take up a greater portion of your portfolio than desired into those that could use a boost—to get back to the initial (or target) asset allocation.

Also, revisit your asset allocation whenever your life changes—for example, if you get a raise, get married, have a baby or go through a divorce. You might decide to take either less or more risk with your investments.2

A financial advisor can help you with the following questions that are often a part of rebalancing:

  • How often and when should you rebalance
  • Which securities should you sell, or buy, to maintain diversification?

3. Don't try timing the market

Market timing is when you move your money in and out of investments to try to capture the performance highs and avoid the lows. Even the most experienced investors get tripped up by market timing. Avoid doing it.

If, for example, you sell investments when they're down, you may lose out on gains if prices go up again. Historically, for long-term investors, the stock market has generally recovered from slumps, although past performance is no guarantee of future results.

The market tends to recover from recessions

While there may be periods where the market declines, over the past 30 years the S&P 500 Index has increased in value 1,040%.

Source: Macrotrends.net, as of October 2020

S&P 500 Index graph

4. Stay focused on the long term

Don't make investment decisions based on emotion, and don't let short-term volatility make you lose sight of your long-term goals. Working with a financial advisor to develop a well-thought-out financial plan can help you stay on course during instability. Your plan should provide a road map for achieving a range of needs and goals—such as paying rent or a mortgage, saving for college or investing for retirement—during both up and down markets.

5. Have a rainy day fund on hand

Always keep tabs on how much cash you have on hand for emergencies. Having enough of a rainy day fund can help ensure you won't have to sell long-term investments during downswings. Try to have enough money set aside to cover at least six months of living expenses. Keep the cash where it will be relatively safe and easy to access, like a money market account at a bank.

It's smart to consider how market volatility could potentially impact your investment strategy, but you don't have to go it alone. Talking to your financial advisor about your concerns can help you stay focused on your long-term goals, avoid mistakes you may make on your own, and evaluate if your plan is built to withstand market ups and downs, so you can continue pursuing your goals.2

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1 Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income.

2 Rebalancing does not protect against losses or guarantee that an investor's goal will be met. TIAA products may be subject to market and other risk factors. See the applicable product literature, or visit TIAA.org for details.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities  laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor's own objectives and circumstances.

Please consult your financial or tax professional before taking any action.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.