Remembering Market Volatility (Article)
Remembering Market Volatility
The S&P 500 Index has been unusually calm since October 2020. In fact, it hasn’t closed down 3% or more on any day since then. Over the 8-month time frame, it has been up nearly 30%. This is a major change from the market we experienced early in 2020 when fears of the pandemic and resulting economic shut down made the market ride feel like a roller coaster.
It’s important to remember that volatility will return to the stock market at some point. You shouldn’t get complacent or let your guard down. Depending on your risk tolerance and your investment time horizon, the steady rise in the market may mean your portfolio now holds a disproportionately large allocation to the stock market. It may be time rebalance your portfolio.
When you rebalance, you essentially move your asset allocation back to its appropriate target. This means selling some of the assets that have outperformed and purchasing more of the assets that have underperformed. Over time, rebalancing helps you maintain a consistent exposure to risk assets and buy low and sell high.
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