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We live in an uncertain world. Unfortunately for investors, too much uncertainty can cause big swings in stock market performance. Although these times can be unsettling, there are steps you can take to help combat the effects of the downturns on your portfolio. Here’s what you need to know.
What Ails the Market: Uncertainty
Market ups and downs occur daily and have many causes. Some events or factors can lead to declines of 10% or more (known as market corrections) or even bear markets, which are declines of more than 20% over an extended period of times. These bigger downturns take hold when investors lose confidence in businesses’ abilities to meet their corporate goals and earnings forecasts.
One way to diagnose the degree of uncertainty is by looking at the Global Economic Policy Uncertainty (EPU) Index. It looks at the frequency of reporting on uncertainty in 21 countries.