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A Checklist for Market Volatility

Investing Insights

For most people, navigating through periods of market volatility may not be an enjoyable experience.  Bold headlines and extensive media coverage make it challenging to “tune out the noise”.  To help provide a solution for these uncertain times we have created a “Market Volatility Checklist”.  

  1. Don’t Panic and Use Your Resources to help Ease Tension  

It is not a good idea to make a significant change to your investment allocation during periods of volatility or to try and time the markets!  A market that goes down by 800 points can just as easily go up 800 points the next day!  This is a time to find a way not to panic and prevent yourself from making an emotional reaction.  We recommend using your trusted resources to help create a layer of comfort.  Hopefully you have heard from your financial professional. If you haven’t this is a great time to contact them.  Part of our job is to put complicated concepts into simple to understand terms.  Use them as a resource to gain a better understanding of what type of environment we are in and how it is affecting your financial plan.  Often a simple 10-minute phone call can provide an emotional comfort level that is priceless!      

  1. Use this Opportunity to Assess your Risk 

Investment risk can be disguised when markets are performing well.  Investors can become complacent with their returns, which can result in a disappointing surprise when markets correct.  Use periods of volatility to assess how much risk you have in your portfolios and if this level coincides with your financial goals.  Why try and obtain returns of 15% a year along and carry the risk that is correlated to it, when you may only need 6% a year in order to achieve your goals?  When evaluating your risk focus on your overall investment diversification.  Is your investment allocation properly diversified or do you own a portfolio of highly corelated assets classes?  What is the ratio of bonds to stocks inside of your portfolio and is this mix appropriate for your risk tolerance?  What type of fixed income do you own and are your bonds negatively correlated to the equity markets?  Investment returns are unpredictable; however, your level of risk is manageable!  

  1. Volatility Creates Opportunity 

It’s time to take back control!  Use corrections take tax losses that were not available prior or may not after the market recovers.  You can also use this period to reduce exposure to a highly concentrated asset which you were unable to do prior because of large gains. If you are contributing to a retirement or 529 college account, it may be a good time to make the contribution as opposed to waiting until the market recovers.  If you were thinking about investing but unsure about how best to proceed, we often recommend utilizing a dollar cost averaging strategy rather than a lump sum deposit.  

  1. Focus on your Financial and Investment Plan 

As an investor it is important to have a clear vision of what your goals are and how your investments are correlated to them. This will help during challenging times and provide a level of reassurance that may be needed.  If you are lacking direction or feel lost, then I recommend you start working on creating a financial plan.  To quote economist Brain Wesbury “Market corrections are designed to scare everyone, and volatility is the emotional price that investors pay to make money when investing”