If you believe what pundits are saying about the recent market volatility, you’d understandably think the sky is falling. It’s normal to feel rattled when you see a lot of red. After all, your financial future may be on the line.
That being said, I want to reassure you that what the markets have been doing is not only expected, but normal. As a long-term investor, you will experience both bull markets – periods of strong market returns – as well as bear markets – periods of disappointing, usually negative, returns.
Corrections – defined as a negative return of at least 10 percent – are both common and healthy for equity markets. Any sound financial plan should account for market volatility and should be designed to focus on long-term goals and be positioned to help weather volatile markets.
Regardless of whether you’re on the cusp of retirement or just starting out, here are some tips to help you weather market downturns.
- Don’t panic. When it seems like the sky is falling, the natural reaction is to panic. It’s certainly easier said than done, but do your best to remain calm and remember that corrections and market downturns are normal and healthy.
Panic can lead to rash decisions that can derail your long-term investing goals. As an investor, you never want to make decisions based on emotions – especially fear – so first and foremost, try to remain calm.
- Schedule a portfolio check-up. Chances are, you schedule regular check-ups with a doctor, even if you’re not sick. Treat your portfolio the same way.
Contact your financial advisor for a financial check-up. Instead of checking your blood pressure, your advisor will check your asset allocation – what stocks, bonds and assets you are invested in – and help you determine how the rocky markets are affecting your financial health.
- Remember your long-term goals. It sounds counterintuitive, but a rocky market environment may be the perfect time to revisit your progress toward those goals.
During your review with your financial advisor, he or she will take a closer look at the progress you’ve made toward achieving your goals and help confirm if any adjustments are necessary.
- Don’t try to time the markets. It’s a natural instinct to want to buy assets that are doing well and similarly to want to reduce your exposure to assets that are declining.
Resist the urge to participate in market timing, which is defined as trying to exit and enter a certain investment position. Market timing is virtually impossible to execute because you need to determine the exact moments to enter and exit the market.
While your gut instinct might be to sell certain positions while the markets are going haywire, try to take a deep breath before making any rash decisions.
Of course, everyone’s situation is unique, but these tips can serve you well during any and all periods of market volatility, including what we are experiencing now.