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Investor sentiment can be a double-edged sword. On the one hand, strong enthusiasm on the part of investors has helped propel the equities market to unprecedented highs. On the other hand, a sudden shift in sentiment can cause an equally sudden shift in the market's performance.

Volatility is inevitable. How can you prepare for it?

Volatility Defined
Volatility is commonly used to describe dramatic, short-term fluctuations in a market or individual investments.

Although it can be somewhat unsettling to see the value of your portfolio drop or rise significantly, there are steps you can take to help survive volatile market conditions.

Calm During a Storm
It's important to keep your perspective during uncertain investment times. First, remember that during uncertain times, the advice of your financial professional becomes even more important.

If your original financial goals are still valid, think carefully before you abandon specific investments because of negative market activity. Remember that you and your financial professional created an investment portfolio based on your risk tolerance, time horizon, and financial goals. Quick, reactionary decisions could prevent you from reaching your goals.

Financial Strategies to Manage Volatility
Time is on your side as an investor, because holding your investments long-term may help to smooth out short-term market volatility. In addition, there are several strategies that can help you manage risk while still keeping your financial goals on track:

Staying on Target

Because market conditions can change rapidly, you and your financial professional should stay in close contact. He or she has the expertise and resources to assist you in choosing investments to help manage risk and keep you on track toward meeting your financial objectives. Also be sure to keep your financial professional abreast of any significant changes in your personal financial circumstances.

Your financial professional is also an excellent resource for providing investment performance history and recognizing new market trends. Do you think you're too heavily weighted in international or domestic investments because of particularly volatile market events? Contact your financial professional to discuss the potential benefits of reallocation. Do you want to establish a retirement plan or fund a college education? Let a professional offer you strategies based on your income, preferences, and lifestyle.

At your request, your financial professional will commence an in-depth review of your current asset allocation strategy to determine if it is best suited to meet your immediate and long-term financial goals.

While keeping your financial needs and goals in mind, you should regularly examine your portfolio to see if it's meeting your expectations. With your financial professional's help, you can see how your portfolio is affected by market trends and cycles, then decide the proper timing for portfolio rebalancing, if necessary.

Market downturns are inevitable, but they needn't spell disaster if you plan ahead and structure your portfolio and your financial strategy accordingly.