The best course of action during market volatility is often inaction. That’s because selling more risky assets with losses is locked into these losses. It revolves around future growth potential and could lead to capital gains taxes in the process.
However, if you feel that you need to take any action, moderate reduction in your overall risk exposure is a reasonable option. Consider lowering your existing inventory allocation by a few percentage points and instead using future deposits to reduce the cost of recalibration. Either way, the solution may be the same: sprinkle more bonds.
Consider bonds to calm your investment nerves
When people talk about diversification, stocks like international stocks attract most attention. However, it is not important in the role of risk management. These are loans given to governments and businesses by investors, and are not entirely risk-free (there are no assets), but the relatively modest profits they tend to pay can feel like a wind drop when the stock price is plummeting. They don’t deny all the volatility of the stock, but it helps to smooth things out and maintain capital. This is why all of the recommended allocations involve holding at least some bonds.
One way to risk some of your future investments is through one of a portfolio (core, value tilt, etc.) consisting of both stocks and bonds. We recommend risk levels based on your goals, but you can easily dial bond allocations to your preferences. Over time, you can slowly tweak things until your collective risks feel right. Alternatively, you can automatically adjust based on the target date.
It also offers two portfolios consisting entirely of bonds. Each is designed for different uses.
Don’t forget the role of cash
One of the best ways to reduce overall financial risk is to reinforce your emergency funds and be in a high-yield cash account, preferably a cash reserve. Imagine the time you want to lose your income flow and return to your feet. The best place to start is a crucial cost of 3-6 months, but your proper amount will help you sleep better at night.
I save more money with cash reserves.
Stabilize your ship in unstable times
As mentioned before, if you set the right-size risk in a recession, it’s not necessarily cheaper. However, there are ways to minimize costs. Gradually lowering the risk profile is one of them, and stretching the safety net is another. Either way, it’s okay to readjust your risk tolerance from time to time.
