The stock markets sure have been volatile this week. The worst week in the U.S. Stock Market in, I believe, two years. Dropped over 5.5% on the Dow. So tremendously volatile. What in the world is going on? And then, what should you do about this?

I’m going to go through 5 level-headed strategies for volatile markets.

You know, the stock market, frankly, may be at the mercy of politicians until the earnings season is announced. Earnings season for corporations will start at the latter part of April. We haven’t seen any updated corporate earnings that indicate any concerns. Fundamentals of the U.S. stocks seem to be pretty strong right now. Going back to the Great Recession of 2007-09,  our markets in the short term seem to be driven more by macroeconomic factors and political factors, rather than by actual market fundamentals. There’s been very little in terms of concerns of market fundamentals that have been driving volatility.

This week, we had several things happen. We’ve got a big concern about a trade war with us and China – that’s been the number 1 thing driving this volatile situation. Then, we’ve got the politics going on in Washington DC. President Trump’s lawyer resigned on Thursday and there’s concern that Trump’s going to take a combative approach with Special Counsel Robert Mueller and the investigation. Well, we don’t know how it’s actually going to affect a stock’s earning report.

We did have another interest rate hike with the Federal Reserve and there’s been concern about inflation. Frankly, in my opinion, interest rates should be higher than they’ve been. Markets are going to react negatively in the short term to that, but interest rates should be higher. They’ve been artificially low. A 10-year Treasury at 2.83 percent – that’s healthy in my opinion.

These things have caused that turbulence we’re experiencing in the US Stock Market. We are not seeing real earnings issues or fundamental cracks in the economy. But, bottom line, it’s volatile and can be concerning.

What if you’re getting ready to retire? What if you’ve already retired? How should you be concerned? I’ve put together 5 level-headed strategies for volatile markets.

  1. Don’t panic. I understand that it’s natural to worry about your investments and question your commitment to your strategy when markets are volatile. But don’t panic.
  2. Stop listening to the noise. Stop hanging on every word the talking words say on the news media. Remember that the news media is entertainment. Don’t misunderstand me, you need to know what’s going on in the economy and world. But these short-term events, especially when they are not economically driven and are just concerns about what may happen down the road, is white noise.
  3. Stay focused on the big picture. When is it that you actually need money that you need to pull from your investment accounts? The longer it is – your time horizon before you pull from your money – the more short-term moves really don’t affect you. That does mean that if you’re retired or getting ready to retire, you need to create time as a hedge in your portfolio. If you need income next month or next year or in the next 5 years, you don’t have time to wait, you don’t have the benefit of waiting 20 or 25 years. But you can create time in a good retirement plan by structuring investments on when you’ll need to draw from them in retirement for income. It is very critical is to stay focused on the big picture with time horizon.
  4. Don’t be tempted by emotion. Volatility makes for stressful investing. And it can be tempting to bail when stocks fall and ride out the bad times, but unfortunately, trying to time when to exit and enter markets is very difficult and likely to not work out in your favor. So, don’t be tempted by emotion.
  5. Stay flexible. I’m not saying to bury your head in the sand, volatility does not mean sitting by passively. One of the benefits of an active, flexible investing style is that we can make strategic shifts to take advantage of new opportunities that may arise.

So, I want to ask you, what are you doing – and what have you been doing – with your investment planning? Here’s how we do it at Brogan Financial:

  1. We talk to our clients about volatility before it happens, not while it is happening.
  2. We create time as a hedge. We structure our clients’ investments based upon when they are going to need income.
  3. We communicate and then take advantage of opportunities. We communicate regularly with our clients throughout the year.

The plan that gets you to retirement is not typically the same as the plan that gets you through retirement. Bottom line, do not panic when it comes to these types of market conditions.