Stock market volatility is the rate at which stock prices swing up and down. It’s a key factor in how often and how much you might lose, or gain, over time.
Volatility can be caused by a wide range of issues. For example, if a company is struggling to meet expectations, its shareholders may become concerned and sell off the stock in large quantities. This can drive down the share price and create uncertainty for the entire industry. On the other hand, if a business has been outperforming its competitors, it can draw in new investors and lift the share price.
Another reason for market jitters is policy uncertainty. Changes in monetary policies, for example, can cause stock markets to fluctuate. Investors might be unsure how long new policies will last, how strictly they’ll be enforced and who they’ll affect.
While market volatility is challenging for many investors, it’s important to remember that over the long term, history shows stocks tend to rise. Volatility can be an opportunity to reassess your tolerance for risk and consider making changes to your portfolio that will benefit you over the longer term.
It’s also essential to have an emergency fund in place, especially if you’re close to retirement or other goals. This can help you avoid having to sell investments at a loss during a downturn and give them a chance to recover. And working with your financial advisor can help you design a strategy that’s less vulnerable to volatile markets.