My colleagues at Willow Creek and I recently received client feedback that every wealth management advisor dreams of hearing: our client shared that rather than panicking during this period of market volatility, she leaned on what she had learned from her adviser over the years, namely, imagine us busy buying large stocks that suddenly became much cheaper.
This, and her confidence that we were fulfilling our fiduciary duty to her, helped her stay calm and disciplined in the face of a lot of bluster about the market crash.
We know that’s very, very hard to do, especially when your own brain is pushing you to do something – anything! – it will stop the fear and help the world feel safe again. In these days of drastic market ups and downs, investors are receiving messages from so many places, all aimed at inducing fear and exploiting feelings of uncertainty.
But the fact remains that markets have always rallied after all the big declines – yes, always – and there is absolutely no reason not to believe that this time will be different.
Those who think the right thing to do is to “exit” the market are the ones who are likely to lose the rally, when it happens. Any economist can show you a hundred years of data to prove that.
So, in the face of mounting pressure and worries about the future, what should a successful investor do? Just as important, what should a successful investor do? not do?
Read on for the do’s and don’ts of managing market volatility.
Accept that the market is constantly fluctuating. And this is a good thing! Without movement, the stock market would not have the potential for growth. The risk is always present, but therein lies the return.
DON’T LET financial news and headlines make decisions for you. Obsessively watching the market go up and (especially) down will drive you crazy, and it could make you pay more attention to your emotions than your logic.
Play the long game. Successful investing is a marathon – not a sprint – and successful investors know that short-term hiccups (or full downturns) won’t last forever.
Any wealth advisor worth their salt will set up client portfolios to withstand market fluctuations. The market has always and continues to trend upwards, so trust the 100-year history (not to mention the Nobel Prize-winning economists), which shows that a diversified portfolio will dampen short-term market volatility while ensuring long-term growth.
Don’t forget what happened last time (and the time before, and the time before).
The tech bubble of the early 2000s, the financial and housing market crash of 2008, the shock of the coronavirus pandemic in 2020 were followed by periods of significant stock market returns.
Although it is impossible to predict the future, we see no reason not to believe that the markets will rally strongly again. The question is when will it start, but only hindsight can answer that question.
Stay disciplined and trust your investment plan. Although financial news networks often try to tell a very different story, this is where the real work happens.
It can be hard to stay disciplined, especially in the face of headlines meant to terrify you, but successful investors don’t change their carefully crafted plan to withstand those exact circumstances.
My colleagues and I are very busy during periods of market volatility, but not because we are making huge changes to our clients’ portfolios.
We’re busy having important conversations with our customers to make sure they understand that they don’t need to panic. The worst thing you can do right now is pull out of the market or drastically change your asset allocation.
REMEMBER to rebalance. Market volatility is very, very useful for the long-term investor – but only if you remember to rebalance your portfolio, which is the process of realigning your portfolio with your investment goals and maintaining your ratios. risk/return on track. Rebalancing offers the most elusive of investment strategies: buy low and sell high.
Take advantage of tax-loss harvesting. When investments in your taxable portfolio lose value, they can be sold to “reap” the loss while reinvesting the proceeds in a similar investment. Banking those losses during a bear market can have a tangible impact on your tax bill for years to come.
Take inspiration from successful long-term investors who may have been worried, but now feel comfortable enough to trust the process and not let anything derail their investment plan. The best advice my colleagues and I can give you is to learn to make peace with the process and enjoy the journey towards achieving your financial goals.