Downturns are not rare events and statistics favor staying the course. The data below speaks volumes, showing in the year following the trough (low point) of a bear market, the returns were on average 47%. This is the “pot of gold” waiting for you at the end of this inverted rainbow.
When the markets are volatile, the news cycles never end. To be clear, you do want to be knowledgeable about what’s happening in your portfolio, but you don’t want to overdo it. You don’t need hour-by-hour updates on your investments any more than you need hour-by-hour updates on your favorite sports team. Watching more closely doesn’t improve the results.
Consider limiting the financial information you receive by social media, TV, and newspapers. Regardless of the medium, they thrive on negativity and these bits of information have a cumulative effect. The more you absorb it, the more you risk anxiety, fear, and even panic. As any good financial advisor will tell you, panic leads to more losses than volatility.
Investing in the stock market involves risk. We all know that going in, but it’s only truly tested when the markets become volatile. It’s normal to feel anxious, concerned, worried, or even fearful. This is precisely why you want to work closely with your “financial foursome,” which includes your CPA, your estate attorney, your mortgage broker, and your financial advisor.
Each of these professionals provides a different perspective, not only for capitalizing on opportunities but also for keeping yourself level-headed. If your “financial foursome” is lacking in some area, leverage your financial advisor for recommendations. They are likely well-connected to the best providers in the area.
If you want to stay on track with your investments, regardless of what the markets are doing, you should commit them to writing. An Investment Policy Statement (IPS) is a document drafted between you and your financial advisor that outlines general rules for meeting your investment objectives. It includes criteria for monitoring performance, addressing risk, and communication between you and your advisor.
Your IPS should also include a provision explaining when you should rebalance your portfolio. Without written objectives and guidelines, your investments are subject to the whims of your emotions, and how you “feel” you should be investing.
You probably took a risk tolerance questionnaire with your advisor years ago and maybe long forgot about it. Now is a great time to go through this exercise again. You’re older now, your life has changed, and your risk/pain tolerance likely has as well.
Many factors contribute to individual risk tolerance, including age and short- and long-term financial goals. Volatility can present the perfect opportunity to rebalance. Work together with your advisor to find the ideal balance of investments to suit your comfort level.
Remember, now is a moment to be cautious, not a moment to panic. If you’ve worked hard with your financial advisor to create a financial plan, stick with it. Historically, recoveries have rewarded patience. If you’re thinking about timing the market, remember that knowing when to get out is only half the battle; you also need to know when to get back in. Staying invested for the long term is far more likely to yield a favorable outcome.
If you’re concerned about recent volatility and have not heard from your current advisor, contact us to schedule a complimentary second opinion. We can review your current investment strategy, portfolio, risk tolerance, and Investment Policy Statement and decide if any changes are necessary. We’re here to help.