How to think about your investments if you’re worried about market volatility

Investors have seen a rough start to 2022 with markets tumbling. In January the S&P 500 had its worst month since the start of the pandemic, dropping nearly 10% in a few weeks.

While historically high inflation and the threat of pending Federal Reserve interest rate hikes have a lot to do with the market movements we've seen, any time our investments lose value is naturally a cause for concern.

If you're worried about market volatility, you certainly aren't alone. There are, however, ways to reshape your thoughts around your investments so you don't spiral every time the market dips.

There's a reason why putting your money in the market comes with risk: you can lose it just as quickly as you can grow it. This is the reality of investing.

"When seeing multiple weeks of volatility, many investors start to question their strategy and wonder what else they could be doing to protect their portfolio," says Tony Molina, a CPA and senior product specialist at robo-advisor investment platform Wealthfront. "But it's important to remember that the ups and downs we're now seeing is a completely normal part of investing."

While market dips can be stressful in the moment, these are short-term movements that you really shouldn't worry about, Molina warns, as they are out of your control.

"These day-to-day fluctuations mean very little to the long-term accumulation of your investments and shouldn't impact your overall strategy," he explains.

This year so far has been a reminder that the market doesn't always go up, but it's in an investor's best interest to stay the course. Investing is a long game where you most likely benefit from sticking it out over time. In fact, not giving your investments time to grow is one of the biggest investing mistakes financial experts say to avoid. Ideally, you should hold investments for as long as you can to maximize your returns. This is especially true if you're investing in index funds that track overall markets, like the S&P 500 or the Nasdaq.

"The market has historically trended up over time so you have to think longer term," Molina says. "Investing is a long game, and no one can time the market, so it's important to keep your money invested — otherwise you could miss out on future potential gains."

"After seeing a recent sell-off of tech stocks in particular, this is a good reminder about the importance of diversification when investing," Molina adds. "Putting the vast majority of your investments in a diversified portfolio can help protect you from the potential negative consequences of one or two sectors taking a larger downturn."

With diversified funds, your money is spread across various securities, so it's more likely that when some stocks in your portfolio go down, other will go up and balance out the loss. Instead of putting your money in individual stocks where the risk is concentrated to that one company, invest in a large number of companies through pooled investments like mutual funds and ETFs that a broker offers.

For example, Charles Schwab has a special tool, its ETF Select List, to help you determine which funds are best suited for you. For mutual funds, Schwab also offers the Personalized Portfolio Builder tool, which helps investors create a diversified portfolio based on information provided around their financial goals.

Those who are newer to investing and worried about market volatility, consider a robo-advisor, which will build you a diverse portfolio based on your risk tolerance, time horizon and investment goals. Plus, robo-advisors automatically rebalance your investments over time based on market conditions and how close you are to meeting your investing targets.

Two pioneers in the automated investing space are Betterment and Wealthfront, both which have a low annual account fee of 0.25% of your fund balance. So, if you have $5,000 invested with either, you'll pay just $12.50 each year. SoFi Invest® offers an automated investing robo-advisor feature and charges zero account management fees

Women investors, particularly, may want to consider robo-advisor Ellevest. Its platform algorithm considers important realities of women's lives, such as pay gaps, career breaks and longer life expectancy, so women can get a true sense of where they stand financially. Ellevest offers three different membership tiers, ranging from $12 to $97 per year.

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