NEW YORK (MainStreet) — When major stock market indexes are sliding downward at bobsled-like speeds, the idea of profiting from the turmoil can seem far-fetched to a typical retirement saver who sees only prospects for loss. But volatility has two sides, and even ordinary retirement investors can gain when equity markets are volatile.
In times like these, managing investments begins with managing emotions. “First, breathe,” says Yvette Butler, president of Capital One Investing in McLean, Va. “Don’t get too caught up in the hype.”
It can help to keep volatility in perspective. “We’ve been in a bull market for about six years,” Butler says. “Markets just naturally contract at times.”
Since markets also naturally tend to recover from contractions, Butler advises investors to consider investing more while prices are depressed. “Make sure you’re allocated appropriately for your risk level and time horizon and, if you can, consider it an opportunity to maybe add to your portfolio,” she says.
One way to approach investing in a down market is as a portfolio rebalancing exercise. When values for a class of securities decline broadly, an individual retirement portfolio may get out of balance. If an investor wants to be 70% in equities and 30% in fixed-income, a 10% stock market decline may make the portfolio over-invested in fixed-income. Buying more equities can restore the appropriate balance.