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Strategies for dealing with stock market volatility

Selling off in a low market is a big mistake for investors!

In times of stock market fluctuation and uncertainty about inflation, rising interest rates and global concerns, it is a reliable reflex for investors to question and want to decrease their exposure to potentially risky assets.

Historically proven, this can be some of the worst mistakes an investor can make.  Selling when market’s are down creates real losses rather than a loss on paper at that given time.  Timing the stock’s markets rally and upward direction is almost impossible.  Many investors never gain back their losses after panic selling.

We should be reminded that stock market corrections are a fact of investing.  Years ago on Black Monday October 19, 1987 the Dow Jones Industrial plunged 23% in a single day and the Toronto Stock exchange was not far behind.  More recently, on February 29, 2020 as a result of the coronavirus the Toronto Stock Exchange dropped to $16, 263.05.  In May 2021, the Toronto Stock Exchange climbed over 20,000.  Warren Buffett contends that “successful investing doesn’t require extraordinary intelligence, but rather extraordinary discipline”.

“The stock market is the story of cycles and of the human behaviour that is responsible for corrections in both directions” – Seth Klarman.

Focus on the long game as market volatility is inevitable and is part of normal and healthy market behaviour.  Just like seasons, stock markets move through states of growth, slowing down and speeding up. The timing of these cycles is unpredictable.  While dramatic moves in the market can make you question your investment plan, it is important to remember not to panic.  When the stock market does dip, the historical facts show that eventually it always comes back even stronger.

If we assume the client’s overall investment plan is sound, diversified and based on their risk tolerance assessment, then the best strategy in times of market fluctuation is to stay course and stay invested.  For those investors who panic sell and liquidate their equity holdings, the consequences can last a lifetime!


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