Handling Market Volatility

Securities rise and fall in value every trading day. Here are some strategies that can help you achieve your financial goals despite uncertainties in the financial markets.

In the investment¹ world, the word "volatility" refers to the changes (or fluctuations) in securities prices that occur every single trading day. An investment or asset class is considered very volatile if its price moves up and down frequently, at times by very large amounts. Volatility can be measured by tracking the range of an investment's or asset class's market price movements over time.

What happened in February 2018 offers a good example of market volatility. The Dow Jones Industrial Average fell approximately 666 points on February 2; then 1,175 points on February 5; and another 1,033 points on February 8. However, the Dow rose more than 300 points on two other trading days during the same period.

Are there lessons you can learn from this period of extreme volatility? Just as importantly, are there strategies you can employ to bring you closer to your financial goals regardless of uncertainty in the financial markets? Keep the following in mind as you watch events unfold.

Volatility is not unusual

Price movements are not at all unusual. It is important to put the declines in perspective. The decline in the Dow Jones Industrial Average in the four days between February 5 and February 8, 2018 seemed a little scary, but in percentage terms, it was a decline of only 6.5% in the overall value of the Dow.

Paper losses don't become real losses until you sell

While it's certainly unsettling to see the value of your portfolio decline, it's also important to remember that the decline is only a loss on paper. It does not become real until you decide to sell or redeem those securities.

Diversification is key

While there is no guarantee, investing in a combination of stocks, bonds, and money market/stable value funds is a time-tested strategy for managing risk and may even help improve returns over the long term. Diversification works this way: When one asset class -- stocks, for example -- loses value, another asset class, such as bonds or cash alternatives, may deliver positive returns that can help offset those losses.

Moreover, you can achieve an additional level of diversification by investing in subgroups within asset classes. Stocks, for example, have many different categories: domestic, international, large capitalization, medium capitalization, and small capitalization. There are also stock mutual funds that invest in specific sectors of the economy, such as health care and telecommunications. However, diversification does not ensure profits or protect against losses in a declining market.

Focus on the long term

When the market is volatile and unsettled, it's important to remember why you are investing in the first place. Your long-term investment goals may include retirement, buying a second home, or paying for college for your children. Historically, long-term investors who have stayed calm and remained invested have done better than those who let their emotions rule their actions and jumped in and out of the market during declines. See the chart for what can happen when you miss the market's best-performing months.

The Effects of Missing Top-Performing Months

Source: ChartSource^®, SS&C Retirement Solutions, LLC. Stocks are represented by the S&P 500 index, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. © 2025 SS&C. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Dollar-cost average

Dollar-cost averaging involves investing a fixed amount on a regular schedule into shares of a stock or mutual fund. When share prices decline, this fixed investment amount allows for the purchase of a greater number of shares. By regularly contributing to your investment account during periods of lower prices, you are effectively capitalizing on a "sale" on securities.

 

Source Information / Legal Disclosures:

The information and general descriptions found in this article are designed to help you understand some of the factors you should generally consider when evaluating the appropriateness of any strategy or investment within your retirement plan. Any description included is for informational and educational purposes and for your independent consideration only; it is not to be regarded or viewed as advice or as a suggestion to take (or refrain from taking) any particular action. By providing this information, we assume that you can evaluate this information, and the general descriptions found here to exercise your independent judgment.

¹The investment products available through retirement plans of Banco Popular are not insured by the FDIC, are not deposits or obligations, are not guaranteed by Banco Popular de Puerto Rico or its subsidiaries and/or affiliates. Investment products involve risks, including the possible loss of the invested principal.

Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice services. If legal, accounting, or tax advice services are required, you should seek the services of a competent professional.

Investing in mutual funds involves risk, including loss of principal. Mutual funds are offered and sold by prospectus only. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. For more complete information about any mutual fund, including risks, charges and expenses, please contact your financial professional or access your retirement online account to obtain a prospectus. The prospectus contains this and other information. Read it carefully before you invest.

You could lose money by investing in a money market mutual fund (Fund). Although a Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. A Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in a Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. A Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

Dollar-cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your financial ability to continue purchasing shares through periods of high and low prices. This plan or investment strategy does not ensure a profit and does not protect against losses.

Because of the possibility of human or mechanical error by SS&C or its sources, neither SS&C nor its sources guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall SS&C be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2025 SS&C. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.