The stock market has been pretty calm lately. Consider the VIX index, which tracks the size of the market’s swings. The VIX is sometimes called the “Fear Index,” because it tends to jump when investors get especially emotional. It stayed well below average for the last couple of years, largely because the Federal Reserve’s policy of pumping money into the economy has comforted investors.
Now the Fed is considering backing away from that policy—meaning volatility could climb going forward. If you hold a large allocation to stocks, your investment balance might jump and fall more on a given day than it has recently. Consider how that would make you feel—or, better yet, discuss the issue with a financial advisor. If greater volatility would cause you to make impulsive changes to your investment strategy, now could be a good time to review your risk tolerance.