Don’t Panic: 4 Recommendations When Dealing With Volatile Markets

If you’ve been watching market headlines, you already know that markets have performed horribly for the first month of 2016, raising the specter of corrections and bear markets. When markets swing, it’s natural to worry about your investments and question commitment to your strategy. As Wealth Managers, here is what we recommend you do when markets are volatile.

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  1. Stop Listening to the Noise.

    Turn off the television, throw away the business section, and stay off financial websites. Hanging on every word the talking heads say will only add to your stress and encourage emotional decision making. One of the major reasons why people hire a team of trusted professionals is so that they can delegate the worrying to others.

  2. Stay Focused on the Big Picture.

    Ask yourself: How long is my investment horizon? If you are invested for 10, 20, or 30 years or more, volatility that lasts days, weeks, or even months shouldn’t affect your long-term strategies. Though we can’t use the past to predict the future, the the Standard & Poor’s 500 (S&P 500) has delivered an average annual performance of 11.41 percent since 1928. Keep in mind that those years include the Great Depression, during which stocks lost 83 percent; the bear market of 1987 when stocks lost 33.5 percent; and the financial crisis when the S&P 500 dropped 57 percent before gaining 202 percent over the next six years.

  3. Don’t Be Tempted By Emotion.

    Volatility makes for stressful investing, and it can be tempting to bail when stocks fall and ride out the bad times. Unfortunately, trying to time when to exit or enter markets is very difficult and not likely to work out in your favor. Research shows that investors are notoriously terrible at predicting market tops and bottoms. Corrections happen regularly, and periods of high growth often occur close to major pullbacks. If you’re not in the market when it rallies, you may miss out on the best days of performance.

  4. Stay Flexible

    Thriving during volatility doesn’t mean sitting by passively. One of the benefits of an active, flexible investing style is that we can make strategic shifts to take advantage of new opportunities that arise. As professionals, we are always looking for prudent opportunities to help our clients pursue their goals in changing market environments.

Though pullbacks and sustained periods of volatility are stressful, they are a normal and natural part of market cycles. As financial professionals, our job is to sort through the barrage of information and take a look at the fundamental factors underneath. After you hire a Financial Advisor, your job is to stay calm and focused on your goals, knowing that there is a serious professional who is taking care of the details for you.

Ideally, your advisor will reach out to you personally if he/she believes that changes to your investment strategies need to be made in light of their analysis. If you have experienced any life changes such as a job change, birth or death in the family, marriage, or a major purchase such as a home or car, these may warrant a shift in your goals and changes to your portfolio, so it’s important to let your advisor know as soon as possible.

If you have questions about how current events affect your portfolio strategies, or if you would like a second opinion on your current strategies and investments, please contact our office at (480) 422-8522.

 

 

 

Sources:
http://money.cnn.com/data/markets/sandp/ S&P 500 YTD February 2, 2016.
S&P 500 annualized average performance 1928-2015 includes dividend reinvestment.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
http://www.yardeni.com/pub/sp500corrbear.pdf
http://www.ritholtz.com/blog/2015/10/sp-500-bear-markets-of-20-or-more-2/ Yahoo Finance. S&P 500 price performance between 10/9/07-3/9/09 and 3/9/09-12/31/15

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