Here are tips to help you maintain your investment strategy during periods of market volatility


This webcast excerpt features Vanguard Chairman and CEO Bill McNabb and Chief Investment Officer Tim Buckley offering tips on maintaining your investment strategy during periods of market volatility.

Notes:
All investing is subject to risk, including possible loss of principal.
Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.
© 2016 The Vanguard Group, Inc. All rights reserved.


TRANSCRIPT

 
Rebecca Katz: Okay, our next question is from a long-term investor, Todd in Villanova, Pennsylvania. He says, “I’m currently significantly underweighted in stocks, but I feel a need to increase my exposure as I’m a long-term investor. However, I’m concerned in this environment about a short market decline. What’s the best strategy for me at this point?” Now we talked a little bit about not expecting a short market decline, but, obviously, this week probably has a lot of people deciding whether or not to invest.

Bill McNabb: So, you know, the most important thing is to know what you want your asset allocation to be in order to meet your goals. So that’s the first thing you’ve got to be zeroed in on. And then if you’re not where you want to be, I think a great strategy—and in Todd’s case, it sounds like he’s underweighted stocks from where he thinks he should be for his long-term allocation. A good way to sort of take the market volatility out of the equation a bit is to dollar-cost average in and so put a little bit more into equities every month for a 12- to 18-month period and sort of ease your way in. And, actually, that way the volatility can actually, mathematically it actually helps you a little bit.

Rebecca Katz: Well, we have a question from Benjamin as a follow-up who says, “Since volatility means ups and downs, it wouldn’t be good to buy in the dips.” I mean today we talked about that a little bit. So dollar-cost averaging but if you see a day like today is—

Bill McNabb: You know, again, I think it’s really hard to predict these short-term fluctuations. I think when you dollar-cost average, the best way to do it is pick a date, you know, a set date of the month and just that’s when you move your money.

Rebecca Katz: Any difference in opinion?

Tim Buckley: It can be tough to resist. You’d rather buy on a down day. I would say, one thing I’d say is don’t let a down day stop you from buying because most people will head to the sidelines on a down day.

Bill McNabb: That’s true.

Tim Buckley: So to Bill’s point, hey, if this is the time for you to rebalance or to dollar-cost average in and it’s a big down day, feel like, oh wow, this is great. I’m buying on a down day. Don’t say, “I’m going to wait until the market stabilizes” because that’s crazy. Why would you wait until prices go up for you to actually get in? So consider a down day it’s not a sign that you shouldn’t rebalance or that you shouldn’t invest. It’s an opportunity.

Bill McNabb: Well, you know, this is the hard thing is volatility always makes investors nervous because you see fluctuations in your portfolio that are pretty dramatic sometimes on a daily basis. Just in the first four or five days of the year equity markets have lost more than 5%. But what we believe investors should be doing is, frankly, tuning out the noise and they should be thinking about what are my goals, what are my long-term goals, and do I have the right asset allocation to achieve those goals? And then they should really be trying to maintain their discipline in terms of that asset allocation. If they’re investing on a regular basis through a 401(k) plan and so forth, they should continue to invest on that regular basis as well.

Important information
All investing is subject to risk, including possible loss of principal. Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.
© 2016 The Vanguard Group, Inc. All rights reserved.