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Understanding market volatility: it's a part of investing!

You may have heard the terms “bull market” and “bear market” batted around. What do these terms really mean, and do they affect your investments?

 

A bull market is a period of time when stock prices are on the rise. These are the times when the markets give a 20 per cent return for a number of years in a row. A bear market is when stock prices fall for a sustained period of time. The fear and uncertainty of a bear market is what makes most people nervous about investing in market-based products. Bear and bull markets, along with in-between periods of less dramatic ups and downs, are a normal part of investing.

The markets have seen some pretty dramatic fluctuations over the past few decades. Market volatility is not an unusual experience. In fact, severe short-term volatility happens regularly - about every two years or so.

While there is no way to completely protect your money from this volatility, you can put a plan in place to moderate the impact. Think back to when you put your savings plan into place. Your advisor helped you to create your plan based on your long-term goals and expectations. You considered your hopes for the future, your comfort with investing and even market volatility.

 

No one can predict what the markets will do tomorrow, but remember to keep a few points in mind.

Asset allocation

Your advisor may have walked you through the asset allocation process to build your plan. This process includes selecting a mix of investments to diversify your portfolio and help minimize risk and maximize return. It's designed to help cope with market volatility.

 

Dollar cost averaging

Investing a set amount of money on a regular basis, such as through a monthly savings plan, can offer you more buying power. When the markets are down, your regular contributions purchase more units when prices are low. When prices rise, you'll purchase fewer units at the higher price. The result—the average cost per unit could end up being lower.

Before you make any decisions about your investments, talk to your Sun Life Financial advisor.

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