By Greg Hart, CFP®
As expected, we’re seeing increased volatility in the financial world this year. No one likes unpredictability when it comes to money; and volatility is just that—erratic and unpredictable. If you invest in any way, shape, or form, you may be wondering how worried you should be.
It seems like a long time ago, but remember just two years ago, in 2017, when market volatility was historically low and you weren’t losing much sleep? With all of the volatility we’ve experienced since early 2018 and into this year so far, you have probably forgotten the peaceful days of 2017. If you’ve found yourself gritting your teeth or wringing your hands, it’s not without cause.
To put our current market environment in perspective, let’s look back at some history. Single-day 1,000-point gains or losses for the Dow Jones have only happened eight times in stock market history, but in 2018 alone, there were five separate occasions when the Dow Jones moved more than 1,000 points in one day. (1) It’s understandable to be worried about your money with all this volatility in the air, but you don’t have to stay in that anxious place.
Here are a few ways to guard your money (and emotions) in a time of increased volatility. But first, let’s talk about volatility in today’s markets.
First, A Word On Volatility
Keep in mind that some market volatility is normal. Up until 2018, investors had grown used to the predictable returns of the past handful of years. That being said, there are some external factors at play right now that are leading to increased volatility—namely trade wars between the U.S. and China, interest rate hikes, and uncertainty about the global economy. If you are worried about how your retirement accounts will fare, you’re in good company. But don’t let that fear lead to costly mistakes. Here is how to get through this year’s (or any year’s) volatility without losing your cool.
Look Beyond Today
At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble, and it won’t be the last.
History shows us that about every four years the markets post negative annual returns. In spite of that, the S&P 500 Index has averaged gains of 11.69% from 1973 to 2016. (2) And declines in the Dow Jones Industrial Average are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average.
So, while things may be down for a period of time, history shows us that if you wait a couple of years, the gains will likely outweigh any losses you have experienced. For example, think back to where you were in 2000, 2011, and 2015, all difficult years for the stock market. Do you remember what you did then? Probably not. Over time, these swings look more like bumps in the road as you zoom out and put today’s upheaval into the broader picture.
Tune Out The Noise
In today’s digital world, we have 24/7 access to the countless number of news media outlets. Because sensationalism sells, most of what you hear will be about how terrible the market is. We are constantly bombarded with articles and videos telling us what we need to do based on each day’s individual market performance.
Yes, market volatility has increased in the past 18 months, but the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses. While easier said than done, successful long-term investors know that it’s important to try and stay calm during market volatility.
Seek Opportunities
Market corrections of 10-20%, like what we’ve experienced recently, can provide opportunities to invest in solid companies at lower prices. This is why rebalancing a portfolio is important, because it gives you an opportunity to buy at potentially lower prices and sell at higher prices at a later date. If you just can’t stomach the idea of making shifts to your portfolio, take this moment to reassess your attitude toward risk and reward. The best time to consider your risk tolerance is now, not right after the market has plunged. While you might wait to revise your allocation, keep what you learned in mind and take small steps to get yourself into a comfortable long-term allocation that stands the test of time.
Stick To Your Game Plan
Yes, volatility and market declines are stressful. However, we encourage you to keep in mind that when the stock market is down, your portfolio does not only hold stocks, but it will typically also hold bonds and other assets that are designed to work together to help decrease overall loss versus a full stock market investment. At Haddon Wealth Management, we custom-design portfolios with your specific time horizon and investment goals in mind and evaluate each investment opportunity on its own merits.
Now is a good time to look at all of your investment accounts, including your 401(k), to make sure your money is well-diversified. Have you been re-balancing on a monthly or quarterly basis? If you have not reviewed your other investment accounts (that we do not manage), get in touch with us and we’ll take a look and offer recommendations to minimize potential losses.
Education = Confidence
Whether you’re new to the stock market or an experienced investor, the more you understand about the economy and how market cycles affect your financial situation, the more equipped you will be to handle these tumultuous times. Here at Haddon Wealth Management, we want to help calm your emotions by providing you with an objective review of your portfolio and an examination of how current events affect your long-term outlook.
If you have any questions or concerns about market volatility or any other matter, call us at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting.
About Greg
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744 to begin a discussion.
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(1) https://www.cnn.com/2019/01/01/investing/dow-2018/index.html
(2) https://www.thebalance.com/stock-market-returns-by-year-2388543
