Preparing for Volatile Financial Markets

This year and especially these last several months have been highlighted by market volatility and significant intraday swings, both up and down. Even outside of the typical circles where conversations of this type are commonplace, people have taken notice of how our current circumstances may or may not affect the stock market.

Although these movements feel especially extreme, it is important to know that this is not the most volatile time in the stock market’s history. The years throughout the early Depression Era, 1930 to 1933, still take the volatility prize. Many of the events of today are significant and historical. Despite this, investors should know that markets have experienced this level of volatility in the past. The word “unprecedented” has become a mainstay in our vocabulary. This volatility of recent times is not a first time, never seen before experience for the market.

Unfortunately, these up and down movements of the market can lead to worriedly reviewing account statements or restlessly checking the market developments making their way into the nightly news. In reality, these strategies can be more hurtful than helpful. This is the exact time where staying cool and focused pays off in spades. Instead of getting caught up in the volatility the market is currently experiencing, follow these strategies to help stay the course! 

Tune Out Market Media

Paying more attention will not help your investment vehicles and their performance. The market must move either up or down every day. No single person can tell what each day will bring. Despite this, there are those who will still hypothesize and attempt to predict where the market will finish at the end of the day, the week, or the year.

It can be hard to ignore news about the stock market. Because of their nature, the most popular sources of market news are forced to highlight negativity and volatility. In order to generate traffic and viewers, the typical sources of investment news and programs discussing daily market events highlight and sensationalize the day’s events. To you as an individual investor, these daily shifts are of little or no consequence. 

It is important to be informed as an investor. Staying up to date and paying attention to how current circumstances may or may not affect you can be important. With that said, it will likely be most beneficial to focus on other activities instead of the day to day market activity. You will be better served if you do well managing the things that you can control, instead of worrying over things that you cannot control.

Focus on the Long-Term

The market is approximately even on the year. Do you think that your retirement accounts will be higher in the future when the time comes for you to retire? History says that this is most likely the case. Markets have trended upward over long time horizons. As the time period increases, you are much less likely to experience negative returns when investing in a stock market index.

This long-term focus will also help to manage the variety of emotions involved with investing during volatility. The stress of dealing with financial markets is real, but there are things that you can do to reduce this stress. When you shift to focusing on your long-term goals and plan, you are investing in your future instead of getting caught up in short-term market movement.

If Necessary, Make Only Minor Shifts to Financial Plan

Many investors will see and experience the volatility in the market. They might feel the need to make some change within their investment accounts. Your long-term focus should dissuade you from changing anything significant within your financial plan and investment program. 

There are a few things that could warrant a minor change or shift. It would be best to contact a financial advisor in a situation of this weight. They will have the resources and additional expertise needed to make a transition seamless and effective.

Perhaps your risk preference or goals have changed. In this event, it is best to slowly modify your investment plan. Making drastic changes based on recent market events is rarely prudent. Maybe you have decided to forgo the retirement that you had planned to occur in the next year or so. Now, you may have to opt for a few additional years of full-time work. These events and others are incredibly relevant to your financial picture. A financial advisor will prove to be a valuable resource in times of heightened volatility where your overall financial plan could be affected in some way.

Your investment process will be key to providing security in this time. The SignalPoint Process is a simple yet effective tool that could be an important piece in helping you navigate times such as these. By raising cash then strategically buying and selling into market movements, there will be a disciplined and logical process in place. This will help you avoid stress and potentially take advantage of some of the volatility.

Value the Advice of a Fiduciary

As has been said throughout this article, a financial advisor can be a valuable resource. This is especially true when the stakes are higher than usual. They can provide prudent financial advice and expertise as well as a variety of emotional benefits. This is an important step in your financial journey. Just as important is ensuring that the professional that you trust for financial guidance is a fiduciary.

Although you may have heard this word mentioned in previous articles or in your own general experience. It is important to know what a fiduciary is in reality. A fiduciary is a person that has the power and responsibility of acting for another in situations requiring total trust, good faith and honesty. Unfortunately, not all financial advisors are held to this high standard.

In times of volatility, it becomes even more essential that you can entirely trust the advice of your advisor. You will know that the person making financial decisions on your behalf will make those decisions in your best interest

 

If you’d like to read more about handling volatility, consider these additional resources.

Why Volatility is Important for Investors – Investopedia 

Causes of Changing Financial Market Volatility – Kansas City Fed

Volatile Financial Markets: How They Impact the Economy and You – San Diego State University