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A Guide to Investing in Volatile Markets

Investing in a volatile market can be nerve-wracking for amateur investors. They try to time the market, chase hot stocks, and consistently sell at a loss. While a lucky few may get rich, the vast majority don’t win the game or even come close. However, it is possible to successfully invest in a volatile market without constantly worrying about short-term fluctuations. In fact, focusing too much on volatility can distract us from the true principles of investing in the stock market – patience, time, and discipline.

Also, let’s temper our expectations of what the stock market can do for us. 

Can it provide us with a sizeable nest egg to get us through retirement and even leave something behind for our heirs and beneficiaries?


Will investing in the stock market make you fabulously wealthy within a relatively short timeframe? 

It could, if you’re extremely lucky, but probably not. 

So, how do we invest in an inherently volatile market and make consistent gains without succumbing to common investment mistakes?

Diversify Across Asset Classes & Sectors

Let’s say it’s February of 2000. You have your savings spread out across all kinds of dot-coms. Business is booming. Yes, some of these companies won’t make it, but that’s why you’ve invested in all of them. You don’t look outside the tech sector because the tech sector is obviously the wave of the future, and you don’t want to miss out on the gains. You feel diversified and secure. 

Then the bubble bursts, and you’ve lost nearly everything by October. 

If only you’d invested outside of the tech sector. 

To minimize the impact of volatility, we should diversify not only across companies but entire industries as well. That means proportional holdings in the IT, healthcare, utilities, and energy sectors, amongst others. So, if the healthcare sector experiences a bubble or a severe downswing, your portfolio as a whole won’t be disproportionately affected. Also, don’t shy away from international stocks. 

But what if the whole stock market blows up?

Diversifying across asset classes, such as investing in fixed-income assets like bonds, can help mitigate the effects of volatility in the stock market. Bonds tend to be less volatile than stocks and often move in the opposite direction, providing a stabilizing force and acting as a cushion against stock losses. Additionally, the fixed income provided by bonds can enhance the overall strength of your portfolio.

Choosing enough individual stocks to achieve the diversification needed to help mitigate sector and asset class downswings would be incredibly costly. That’s where investments like ETFs and mutual funds come into play. For example, the Vanguard Total Stock Market Index Fund attempts to track the performance of the stock market in its entirety. As Vanguard’s founder, Jack Bogle, famously said, ‘Don’t look for the needle in the haystack. Just buy the haystack!’

Don’t Time the Market (Dollar-Cost Average Instead)

It may be tempting to cut your losses and sell those underperforming assets. However, all you’re doing is locking in those losses forever. One common mistake investors make is selling when a stock is on the downswing, possibly for a loss, then repurchasing it on the upswing, potentially missing out on the best gains the markets have to offer. Rather than buying low and selling high, they do the opposite! 

To achieve our goals, we need not only to avoid selling during market downturns but also to continue making regular purchases, as difficult as it may be. Dollar-cost averaging is an effective strategy for this approach. Regardless of market conditions, consistently invest a set amount of money to maintain your desired asset allocation. For example, if you have allocated $1,000 per month for investments, it’s crucial to continue making those purchases every month without fail.

This disciplined approach helps prevent attempts to time the market and may lower the overall average cost of your investments. While a lump-sum investment could result in much more significant gains, it would require successfully timing the market, which is nearly impossible. In contrast, dollar-cost averaging is a systematic and mathematical strategy that can lead to steady gains over time rather than relying on luck or speculation.

Regularly Rebalance Your Portfolio

Investing across a wide range of sectors is not enough because they don’t rise and fall at the same pace. Suppose that 15% of your investment portfolio is allocated to the IT sector, and 10% is allocated to the energy sector. A surge in the tech industry causes your IT sector allocation to increase to 25%, while a decrease in the energy sector reduces its allocation to 5% in your portfolio.

Your portfolio is now overly concentrated on IT sector assets, putting it at risk. The energy sector is simultaneously underrepresented, meaning potentially missed opportunities when it rebounds.  

Here, you’re presented with an excellent opportunity to lock in gains by selling some of your tech assets and purchasing energy assets at a discount. You’ve successfully realigned your portfolio to your desired allocation and risk profile without succumbing to fear-based emotional investing behaviors.

If you’d prefer not to lose further growth potential, there are other ways to rebalance your portfolio without selling assets. In your dollar-cost averaging process, you can simply allocate more funds to those sectors that need a boost. Also, in some cases, selling off losing assets to maintain a desired risk profile is necessary, so it’s not always buy and hold forever. However, it’s essential to factor these losses into a tax-loss harvesting strategy. 

Rebalancing your portfolio will become increasingly difficult the more accounts you have. For example, rebalancing a 401(K), IRA, and brokerage account simultaneously can be a tall task that simply may be beyond the abilities of a DIYer.

Final Thoughts

Investing in the stock market can be intimidating, especially for those new to the game. It’s easy to get caught up in the hype and emotion of it all, leading to impulsive decisions that can have serious consequences. 

Investing isn’t a get-rich-quick scheme, though—it’s a long-term game. While it’s natural to want to see immediate results, building wealth takes time, patience, and discipline. Tune out the noise, eliminate the market’s distractions, and stick to your investment plan. That’s the only proven way to consistently win the game.

If you’re ready to take the first step towards building a robust and diversified investment portfolio, click the button below to learn more about how we can help.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The scenario mentioned in this presentation is not an actual client experience. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this presentation.

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.