Forget Trying to ‘Time the Market’: Here are 5 Better Ways to Manage Volatility

Market volatility — a.k.a. when your investments move up and down, sometimes quickly—is a fact of life over the course of your investing career. 

That’s because there’s nothing you can really do to control the broader market. It’s going to move based on things well outside of any of our control, like, oh say, a global pandemic

However, just because there will be times of uncertainty doesn’t mean you should skip putting your money in the market! Investing is a critical piece of your financial life.

Luckily, while the market isn’t in your control, how you react to and plan for it very much is.

That’s why it’s best to focus on controlling your behaviour in relation to market volatility, and making sure you’re only exposed to the volatility you can handle. And by “best,” I mean “might save your entire portfolio and make sure you don’t invest your entire retirement into GameStop.” 

So trust me, and follow the steps below. They’re worth doing — and they’re not hard!

Hey, full disclosure: Some of the links in this article are sponsored. But we only recommend products and services we trust and that we think you’ll love.

1. Invest in a diversified portfolio

The easiest, and most baseline requirement when it comes to handling volatility in the market, is to put most of your money into a broad, diversified portfolio of different investments. This is easy to do with robo-advisors like Wealthsimple, which handle all the complexity for you: you add money to your account, and they divide it according to your risk level into investments in multiple countries, multiple industries, and even between risky investments like stocks and less-volatile ones like bonds. 

Because here’s the thing with market volatility. Just because one industry might be experiencing wild swings, it doesn’t mean that every industry is experiencing them. 

The same goes for investment types and countries — what’s happening in one might not be happening in another. If you’re investing in all of them, it mitigates the highs and lows you might experience over the course of days, weeks and months, which makes it easier to ride out any sudden moves.

Just think: if you had been 100% invested in airline stocks over the past year, how would your portfolio look right now? Probably not great, but bundle those airline stocks into a portfolio that was also exposed to industries like tech and banking, and you probably didn’t lose nearly as much — you might have even had a good year.

2. Invest regularly

As part of your monthly budget, you should have a line item for long-term savings that you invest for retirement — even if it’s a small amount, because everything counts! Putting aside money monthly for your future self is great on so many levels, but one of the less-discussed reasons is that it almost forces you into a strategy for dealing with market volatility

Let’s say that you invest $12,000 a year for your retirement (high fives, by the way!) If you put the entire amount in once a year, and the market crashes right after you did, it might be more challenging to keep your emotions in check.

But if you put $1,000 into your investments every month, not only is there less money that went in right before a crash, you also have money left over to invest at the lower levels the market moved to — so you’re buying more of the same investments for the same “price.” Plus, since you’re investing monthly, you can set up automatic contributions and then forget about it, so you might not even notice when the stock market takes a dip. 

A.k.a. the dream: I can’t tell you how many times people have brought up “the stock market” to me and I hadn’t even realized anything was happening in it.

3. Know your timelines

There have been some Bad Times in stock market history. 1929 comes to mind, as does the housing crisis in 2006. But the one thing that I always find reassuring is looking at the broader market trends over decades.

Sure, markets can go down for months at a time, and sometimes even years. But over the long term, they tend to go up. If you’re investing for your long term, like retirement, that’s a helpful frame of mind for when you see fluctuations happening in the market — and with the amount of news coverage that the stock market gets, you might see them even if you’re not looking for it.

Short-term fluctuations are a fact of life, and “short term” can be as long as a few years. But if you know you’re investing for the next 30 years, not the next two, it’s a lot easier to hold tight, keep investing on a regular schedule, and ride it out.

4. Hope for the best, plan for the worst

Everything we’ve talked about so far has assumed you’ve got a diversified portfolio of long-term investments. Even if that’s most of your portfolio, there’s always the option of adding in some riskier investments like individual stocks or cryptocurrency if it fits with your goals and you’re interested in them.

Sidebar: To be perfectly clear, no one needs to invest in these kinds of things! You can have a wonderful and financially successful life without ever touching them!

That said, you’re really upping the ante on the amount of volatility you’ll be exposed to, since individual investments like this can move much more quickly than the broader market, and much more often. 

When the overall market gains or drops 10%, it’s a major breaking news story. When a single stock moves 10%, it’s a Tuesday. 

That’s why there are two absolute musts to follow if you’re investing in these types of things:

Don’t invest more than you can afford to lose. You have to be OK with this investment going to $0. If you’re not, or if that would seriously impact your financial plans, it’s too risky — and you’re setting yourself up to make panicked decisions that aren’t in your best interest.

Only do this kind of investing outside your balanced, diversified portfolio. Once you’ve got a solid foundation of investments in something like Wealthsimple Invest, which will track the broader market, you can start putting some money into riskier bets, since the bulk of your savings aren’t going to tank if that one moonshot stock or Dogecoin drops by 75%.

5. Don’t look at your invesments

I will fully admit that even with a “boring” investment approach like mine (most of my money is in a diversified portfolio with Wealthsimple Invest) it can be challenging not to peek at how your portfolio is doing, especially with the easy access we now have with online investing tools. But if you can manage it, checking your investments on a schedule or not at all can help you avoid any impulses to take action based on market volatility.

Plus, there’s nothing more satisfying than someone asking if you’ve seen the crazy market news related to investments you hold, and getting to say “Nope, hadn’t been paying attention.” If your plan is set up well, you don’t need to — and you can spend that mental energy on things that can actually make a difference in your life.

Because trying to time the market, or control market volatility, just isn’t one of them.