The 5 Phases of Dealing With Market Volatility

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Which One Are You In?

If you are like most of the people I have been speaking with over the last few months, they are concerned about volatility. Extreme movements in your investments can be hard to deal with.

Most of us are happy if that volatility is to the upside; if the Dow Jones Industrial average goes up 500 points you want to celebrate right?

But downside volatility can be very disturbing.

Remember a few weeks ago when the market was down 800 points on a Monday? (What is it about Monday’s anyway?)

Here are a few timely tips to help you maintain your perspective in a volatile world.

Phase One: Turn On The News

You come home from a day at work or running errands and you turn on the evening news. You find out that the U.S. has gotten in a disagreement with some foreign country and wants to sanction them (tariffs anyone?).

The next story tells you the market dropped by hundreds of points and the announcer says things could get ugly. What do you do? Well you could start drinking heavily, but that will wear off and the volatility will still be there. Which leads us to phase two:

Phase Two: Turn Off The Television

Step back from the emotions. Remember, news programs are designed to worry and alarm you, it is good for ratings! Sometimes moving back to gain perspective can be helpful.

Ask yourself questions such as, “how long until I need this money,?” or “ Do I have an investment policy in place?”

A policy should outline how much downside you will accept in a given asset or investment strategy. If you set up a portfolio parameter of 10% downside and the market dropped 3%, just keep an eye on things but don’t panic.

Phase Three: Reassess Your “Risk Tolerance”

One of my least favorite concepts in the investment world. It is like asking someone how much pain they can tolerate. “How many times can I punch you in the arm before you will ask me to stop?”

Maybe when you set up this portfolio your world was different. You didn’t have kids and now you are staring at college costs. Or you are thinking you will retire in a couple of years.

I have always believed that your money should help you sleep better at night, not keep you awake. If you are losing sleep (or just feeling stress due to market volatility) then maybe you need to take a different approach.

Phase Four: Ignore Your Feelings

After all, it will go away, the market comes right back or any one of several rationalizations come to mind. I remember sitting down with a client in 2002 and telling me he was afraid to look at his account statements (he was with a different adviser then). When I suggested that it would be a good idea for him to know what was going on, he gave me a box full of unopened statements.

He hadn’t opened one for over a year and a half!! This really isn’t in your best interest, especially if you will need to use those funds in the next 5 years or so.

Phase Five: Meet With Your Adviser

I know that Suzie Orman says that you can do it yourself. There are many studies that show working with the RIGHT adviser can improve your outcomes dramatically.

We tend to sell low and buy high, which is not the way to make money. Behavioral economics have studied this phenomenon. You see it in the news; the market sets a new high and you see the headlines: “Dow Jones going to 35,000” “Gold will rise to $3,000 per ounce”. When things go the opposite way, the headlines will say; “Dow Jones going o 1,000”, etc.

When you have the right adviser, you can talk with them and make sure your investments are still working within the plan you set up with them. They can help you keep perspective and stay on track to your objectives. They can also help you limit losses by suggesting changes that will reduce volatility and help you stay focused on you and where you are headed. At the end of the day, we want to limit losses and enjoy the gains, right?

If you need to speak with an adviser and you don’t feel the ones you know can help you create and maintain a plan to achieve your objectives, you can contact us for a free initial consultation to see if we can help you gain the confidence to succeed!
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