If there's one constant investors have faced over the past few months, it's been volatility. The swings have been downright wild at times, as headlines about one debt crisis after another and increased computer-driven trading systems around the world sent markets whip-sawing.
The benchmark index of the TSX recorded gains or losses of at least 200 points on 20 trading days in the three months ending Nov. 30. In one September week, the index lost 925 points, or almost 7.5 per cent. On one day (Sept. 22), the range between the high and low readings for the index was a stunning 535 points – or almost five per cent of the index.
The peaks and valleys were often even more pronounced in New York, where the Dow Jones industrial average moved more than 400 points on four consecutive trading days in September.
Sharp moves like that have prompted some nervous investors to sell equities and move to the sidelines.
Mutual fund industry figures show that Canadians lightened up on their equity fund holdings by $9.25 billion during the first 11 months of the year. More than a third of that selling took place in October and November.
The bad news is that experts say the big jumps up and down aren't likely to go away any time soon.
"I think volatility is here to stay," says Marc Lamontagne, a certified financial planner at Ryan Lamontagne Inc. in Ottawa. "It's the new normal."
It's the sharp market drops that really bother investors, he says, citing research that the pain of a down market is felt twice as much as the joy of an up market.
So how are investors supposed to cope with a market that seems hell-bent on scaring the pants off them and their portfolios? Here are some strategies the experts suggest.
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