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Market Wrap-up for Jan. 13 – Volatility and Opportunity

U.S. equity markets managed to open higher today, bolstered by better-than-expected quarterly earnings from bellwether Alcoa (AA ). Despite today’s uptick, however, volatile price swings have plagued Wall Street during these first few trading days of the New Year.

Dealing with Market Volatility

When markets hit a rough patch, it is sometimes difficult for us to remain patient and not panic. At the same time, however, it is not always ideal to just sit back and ride out volatile price movements, as more often than not these pullbacks can create great opportunities for investors.

But before deciding to either scale into or out of a position, we encourage you to focus on your own portfolio’s unique risk/return profile. What is important to understand is that the risk associated with your investments may be much different than the overall risk seen in the market today.

To help identify where the risks lie within your portfolio, you can use a number of conventional risk metrics as well as other subjective factors. To learn a bit more about this, please read our Dividend Investor’s Guide to Measuring & Managing Risk.

Identifying Opportunities

After you’ve taken a close look at your portfolio’s risk/return profile, it is easier to determine whether or not you want to make any changes. Given the market’s recent volatility, you may be able to find some unique opportunities.

More specifically, the pullbacks seen this year create a unique situation for investors to tap into potentially undervalued stocks, or even an opportunity to beef up an existing position at a relatively lower price.

Be sure, however, to stick to your fundamentals before making any decision. A few key steps include:

  1. Defining your objective
  2. Setting your “safety net” criteria
  3. Screening and researching

Our guide on How to Find Undervalued Dividend Stocks is a great resource for identifying the types of opportunities you may be able to find in the current market environment.

Be sure to check us out on Twitter @dividenddotcom.