Investment markets in the last few months have been like a windy day, moving on a whim, affecting your portfolio, and making it hard to hold steady.  We have an inherent aversion to suffering losses, and a loss of 5% feels more significant than a gain of 5%.  You know you shouldn’t sell when the market is low, and you know that the market always recovers in the long term – but how do you reign in your emotions and hold your hat on when the wind is blowing this way and that.   Here are five things to hold onto when the wind is blowing every which way:

1.  Know Yourself

Understand your time horizon, financial situation, emotional tolerance for market exposure, so that you won’t want to change your allocation when markets are down.  You and your financial advisor have discussed your objectives and your risk tolerance when you agreed on your holdings.  Have there been changes in your personal situation since then?  If you expressed the idea that you may be making withdrawals of a certain amount within a year, then the portfolio should have planned dividends and interest of that amount or should have ear-marked that portion of your portfolio to be suitable to short-term investment.  The portion of your portfolio that is suitable to long-term investment will have time to recover before you make your withdrawal.  The more you can plan ahead for investment income or withdrawals, the better your portfolio can withstand volatility and while generating the income you need.

2.  Know how to Overcome Emotions

Just as planning ahead for investment withdrawals helps the performance of your portfolio, planning ahead for investment deposits also enhances returns.  While it is logical that volatile markets present opportunities to buy quality investments at bargain prices, our emotions make it difficult to intentionally buy during these times of uncertainty.  We can overcome these emotions by using a disciplined strategy.  Making fixed dollar deposits regularly, regardless of market movements, called Dollar Cost Averaging, means the same dollar deposit buys more units when prices are low and fewer units when they are high.  Monthly or Weekly deposits provide the discipline to buy more when prices are low, and automatically provide a lower average price for your holdings.  Below is an example of $200 invested monthly and how dollar cost averaging lowered the average price per share and purchased more shares with the same amount of money.