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Finding calm in the storm: Investing in volatile markets

Lately it seems as though the financial markets are up one day, down the next. While wide price fluctuations do happen from time to time in the world’s stock and bond markets, they can make any investor anxious. It’s perfectly natural to be concerned when the value of your investments falls. It’s also important to understand this simple truth: You cannot pursue the rewards of investing for retirement without enduring the risk of price fluctuations that can be both severe and unpredictable.

So how can you keep cool when the markets turn turbulent? You can weather these swings by sticking to a carefully selected investment plan based on your personal situation and needs, not on the fickle moods of the financial markets. Here are some tips:

  •  Maintain your balance. Hold a diversified mix of stocks, bonds, and short-term reserves tailored to your objectives, time horizon, risk tolerance, and overall financial situation. Short-term reserves provide stability while bonds offer steady income and can help offset the swings in stock prices. Stocks historically have provided the highest long-term returns and the best long-term protection against inflation, although at the cost of greater price swings. Periodically revisit your investment program and make adjustments as necessary to keep your asset mix well balanced.
  • Continue investing regularly. Making regular contributions will put the market’s natural volatility to work for you by lowering the average price you pay for your fund shares. It will also reduce the risk of committing substantial assets at a time when the market is considered “high.”
  • Keep an even keel. It’s human nature to get nervous at the first sign of trouble and want to revise your investment mix. Market downswings can cause even the most aggressive investors to have second thoughts. It pays, however, to remain focused on the long term. The markets run in irregular cycles, and good and bad periods come and go. Remember, too, you’re most likely investing to achieve the long-term goal of retirement—not to avoid a short-term loss.
  • Make gradual shifts (if necessary). While rebalancing your portfolio once a year is a good idea, constantly shifting in and out of funds looking for top performance is not. You should also resist the temptation to sell because one component of your program has declined in value. Moving your money from stocks and bonds to more conservative investments in hopes of avoiding a loss or finding a gain is seldom successful. If you are anxious about the proportion of your program invested in stocks, consider gradually reducing your stock holdings in small increments.
  • Set realistic expectations. Setting more reasonable expectations for your investment program may help you put market drops in perspective.
  • Think in terms of your overall portfolio. Don’t evaluate each fund you hold in isolation. Instead, think of your funds as playing distinct roles within your total portfolio, which includes your retirement plan and any other investments. Gains from one investment may help offset short-term losses in another, helping you smooth overall performance and making it easier to weather the ups and downs of the market.

If you are ready to retire

Your investment objectives and time horizon may have changed, but you may still have time to weather market volatility with a carefully selected investment plan. You can evaluate your current mix by completing Vanguard’s Investor Questionnaire at The questionnaire will help you determine whether a more conservative or aggressive mix of funds is appropriate for you.

For more information

You’ll find valuable retirement and investment education and tools at For answers to your questions, call Vanguard® Participant Services at 800-523-1188 Monday through Friday from 8:30 a.m. to 9 p.m., Eastern time.

For more information about any fund, including investment objectives, risks, charges, and expenses, call The Vanguard Group at 800-523-1188 to obtain a prospectus. The prospectus contains this and other important information about the fund. Read and consider the prospectus information carefully before you invest. You can also download Vanguard fund prospectuses at

© 2007 The Vanguard Group, Inc. All rights reserved. Used with permission.

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