Coming off our fall in the markets in early 2020 — largely due to oil and the coronavirus outbreak — is a quick reminder of how markets can become volatile at any time. With an election coming up and no sight of a widely available vaccine anytime soon, market volatility could hit again… in an instant. This results in quite a bit of anxiety about life in general, and of course, for your investment portfolio. The advice is simple: Stick to your plan. But doing that — and staying calm and mindful during the process — is easier said than done.
Staying calm is an acquired skill
Sometimes I think of a volatile portfolio like a house that is on fire; the instinct of investors is to fight the flames with everything they have — or get out quickly. However, investing is not like putting out a fire, so your advisor is there to remind you to step back, watch, and periodically add more money in while you monitor conditions. This is challenging for even the most experienced of investors. In fact, it’s very much the same for beginning, average, and wealthy investors alike. Staying calm during a downturn in the market is an acquired skill. I have a few ideas to share for staying calm during our next time markets get into “unknown territory,” with some of the reasons why it helps.
Tip #1 – Control financial news and noise
Easy. right? (Not so much.) When the markets drop, the bright RED, the noise of minute-by-minute headlines start to avalanche. On top of that, every major news network is broadcasting on every available device: your phone, your computer, even your watch. This makes it that much harder to avoid. One would think the world was coming to an end, with the media giving everyone this sense of impending doom. Even social media tries to trigger the fight-or-flight response in us, saying everything is a “crisis”. While you may not want to disconnect completely, controlling the flow of information (and thinking critically about it) can be super helpful for your mental state as well as your portfolio.
Tip #2 – Don’t pay attention to the high point of your portfolio
When some folks see the value of their accounts below its all-time peak, they instinctively think of ways to stop the “losses” by selling out. As a financial advisor, I’d start by reviewing the strategy and making sure that it fits within your plans — often a “flight-to-quality” is not the most lucrative course of action. Then, one of the hardest parts of my job is to not only do that, but — if it makes sense — encourage investors to buy even more of those beaten-up funds while they are down! The moral of the story is that investors often tend to compare the current state of their portfolio to its peak, but this can cause panic and anxiety. My recommendation is for investors to compare their portfolio now to what it was when it started — this can help maintain perspective and calm fears.
Tip #3 – Learn from history
Historically, the markets* have recovered. Sometimes it took a while, and sometimes it was more rapid, but things have recovered. Pushing past your own fear, keeping a level head, and staying calm can help you seize all the opportunities times like this have to offer. Buying in an uncertain market — or simply holding and sticking to your plan — can be a smart financial strategy.
My advice: during periods of market volatility, keep calm and invest on.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
*Market recovery referencing the Dow Jones Industrials and the S&P 500 indexes.