financial independence bumpy road

Navigating Market Volatility on the Path to Financial Independence

During the summer months, the stock market is typically very quiet as large institutional shareholders and hedge fund managers take summer vacation.  Trading volumes tend to be light, which sometimes lead to volatility in the market.  Stocks may do up or down on very light volume and this could sometimes cause your portfolio to experience unwanted volatility.

To navigate through this period is to be patient. The road to financial independence is a long and sometimes bumpy one.  The trick is to not focus on the short term market movements and take comfort in that over a long period, the stock market typically generates returns in the range of 7-9% on an annual basis.  While there will certainly be periods of expansion and recession depending on the stage of the economic cycle, the key is always to remember that this is a long game.

A Fire Fellow recently emailed me regarding the volatility of his portfolio.  It had fallen 3% over the past month and he was worried that this would somehow affect his FI/RE plans.  I assured him that investing in the market has inherent risks but that he should always focus on the bigger picture over the long run.  Stocks are pieces of businesses, and businesses will see bumps in the road. It would be silly to assume that the stock market would go up in a straight line.

The best tip I would give my readers is that you should focus on constructing a solid, diversified portfolio and not look at daily returns.  This would help mitigate some of the risks of investing.

As usual, if you have any questions, Ask the Fellow!

 

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