Volatility is back in the Markets

Wow! A 4% drop in the S&P500 in 4 days! Is this the beginning of the next big bear market?

Wait a minute! Let’s not start trying to predict what is going to happen. Don’t let emotion drive your investing decisions. No one knows what is likely to happen next. This pullback in the markets is part of normal ups and downs (albeit, it is a little volatile right now).

Also, let’s not play the game based on definitions set by others. Whether this is the beginning of a bear or part of a normal Bull market pattern shouldn’t matter to you. You need to control the risk in your portfolio based on how much pain you can tolerate in the form of lost value. The only way to do that is to have a carefully planned exit strategy that will move you (at least partly) to the sidelines when the markets drop too much.

In the realm of technical indicators, the S&P500 did break below its 50 day moving average yesterday, and many strategists use that as a sign to lower their allocations to equities in case it drops further. But, be sure you have a re-entry strategy as well. Because, if you step to the sidelines, you might get caught sitting there way too long if you don’t know when to get back into the game.