Strategies for dealing with market volatility | American Funds

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Market perspective

Strategies for dealing with market volatility

It’s hard to see your retirement investments go up in value one day and down the next. It’s even harder to see them go down day after day. As recent volatility shows, no strategy can guarantee positive returns. Still, it’s worth remembering these long-term fundamental principles of investing, especially in difficult market environments:

  • Invest regularly — in good and bad times
    • Having 401(k) contributions deducted from your paycheck (if your plan allows) or putting a set amount in your IRA each month is a good idea. Although this strategy doesn’t guarantee a profit or protect against loss, it’s one way to take advantage of a down market because you’ll have the opportunity to buy shares while prices are relatively low.
    • Instead of fearing a down market, view it as an opportunity to invest in good companies at potentially lower prices through your mutual funds.
  • Avoid jumping in and out of the market
    • Successful market timing is very difficult because it requires getting out at the right time and getting back in at the right time.
  • Maintain a diversified portfolio
    • By investing in a mix of mutual funds that invest in stocks, bonds and cash-equivalents, you may lower your risk because you’re not overexposed to any one type of investment.
    • Consider allocating a portion of your investments in an international or global fund. Markets outside the U.S. often move in their own market cycles.
    • If your plan offers them, consider investing in a target date fund, which can serve as a single, diversified investment. Target date funds attempt to balance investors’ needs for both returns and stability by moving from a higher percentage of growth funds to a higher percentage of income-oriented funds over time.
    • Diversification doesn’t guarantee a profit, but over time it can help reduce the effects of volatility.
  • Don’t forget history
    • In the worst of times, it’s easy to forget that market declines — even steep ones — have been a natural part of the economic cycle.
  • Talk with your financial professional
    • Don’t make quick moves based on emotion or act based on one event without talking to a professional.
    • A financial professional can help you analyze your investment goals, time horizon, risk tolerance and financial circumstances to make sure your investments and asset allocation still make sense. Even when the market drops, your investment goals are unlikely to change.

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Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be greater with investments in developing countries. You should discuss these risks with your financial professional.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from your plan’s financial professional or downloaded and should be read carefully before investing.