5 Smart Strategies for Dealing with Market Volatility

The U.S. Stock Market has been on a pretty good run since the end of the Great Recession in March of 2009. As the market continued to hit record highs in 2017, we saw something very unusual amidst these market highs: a remarkable level of stability. When we examine the number of days the S&P 500 index moved more than 1% in a day, 2017 was the second lowest year on record. It was highly improbable that this level of stability would continue in 2018.

Since January of this year, market volatility has certainly heated up. However, it’s important to keep this in perspective. First, the relative market stability of 2017 has lulled many investors to sleep, as last year was an anomaly when measured against history. Second, with the Dow Jones Industrial Average over 25,000 earlier this year, the index must move 250 points to represent a 1% movement. While a 200 point movement 8 years ago would have been newsworthy, it’s not when the Dow is near 25,000.

If you’ve been watching the market headlines lately, however, you may have concerns about volatility in the market. Here are five tips for remaining level-headed when markets are volatile:

1. Don’t Panic!

Market volatility is expected. We shouldn’t be at all surprised. We should plan for market risk before it happens, not while it’s happening. Investment and financial plans should be built around both your ability to take risk, as well as your own appetite for downside losses. By addressing these possibilities before they happen, we reduce the likelihood of making an emotional, short term decision.

2. Don’t Listen to the “White Noise”

We should recognize the news media for what it is: entertainment. All too often, it is not a source of practical financial information. Hanging on every word the media says will only add to your stress and could lead you to make emotional decisions. One of the major reasons you work with a team of professionals is so that you can delegate the worrying to us. And we will keep you informed.

3. Focus on Your Long Term Financial Plan.

It’s easy to get distracted by the short term, especially with our 24 hour news cycle. However, a good financial plan builds time horizon into the equation. When will you actually need the money that’s currently invested in the market? If you’re retired, you may need income right away. That’s why we build financial plans to provide income from stable investments and savings in the short term, and leave the risk monies alone for longer term growth. We therefore segment your investments based upon when you’ll need to draw from them. One of the greatest hedges against market risk is time. With a good income plan, we can build time into the financial plan as a natural hedge.

4. Don’t Be Tempted by Market Timing.

We live in world that is becoming more and more volatile. Since the Great Recession of 2007-2009, we have found that, in the short term, markets move more based upon macro-economic and political factors than actual market fundamentals. It is very dangerous to try and time the market. Making an effort to buy or sell based upon market timing is very difficult and not likely to work out in your favor. Instead, we build investment plans around the key question of balancing risk and reward, and then factor in time horizon, as noted in tip #3.

5. Stay Flexible.

Staying level-headed during volatility does not mean sitting by passively. One of the benefits of an active, flexible investment plan is that we can make strategic shifts to take advantage of new opportunities that arise. While we do not believe in constantly getting in and out of mutual funds, ETFs and stocks, we are always looking for prudent opportunities to help our clients better pursue their long term goals in changing market conditions.

What Should I Do Next?

Market corrections are a normal and natural part of market cycles. As financial professionals, our job is to sort through the barrage of information and examine the fundamental factors underneath. We’d like you to prepare for and live retirement, knowing that we are here taking care of the details for you.

If you have experienced any life changes or shifts in your goals that may warrant a review of your current financial plan, contact us at (865) 862-6800 and we can help you make the necessary adjustments.