By John Halterman
Remember the good old days of 2017 when market volatility was historically low and you weren’t all that worried about your investments? With all the volatility we’ve experienced in 2018 and this year so far, the peaceful days of 2017 probably seem like a lifetime ago. 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 take a look back at 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’s how to guard your money (and emotions) in a time of increased volatility.
First, A Word On Volatility
Keep in mind that some market volatility is normal. Investors have just 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 the moment, 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 the last hour’s market performance.
Yes, market volatility has increased in recent 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 stay calm during market volatility.
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 so important, because it gives you an opportunity to buy low and sell high. If you just can’t stomach the idea of messing around with your portfolio, take this moment to reassess your attitude toward risk and reward. The best time to consider your risk tolerance is now, 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 while the stock market may be down significantly, your portfolio is made up of stocks, bonds, and other assets that are designed to work together to help decrease overall losses. At Beacon Wealth Management, we custom-design every portfolio 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 take a look at all of your investment accounts, including your 401(k), to make sure it is well-diversified. If you have not reviewed the investment accounts that we do not manage, get in touch with our office 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. The team at Beacon Wealth Management wants to help calm your emotions 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 volatility or your financial plan, call (304) 626-3900 or email me at firstname.lastname@example.org.
John Halterman, best-selling author and nationally published blogger has been featured as a financial guest expert on the shows of self-help gurus Brian Tracy and Jack Canfield, author of “Chicken Soup for the Soul” and has appeared on ABC, FOX, BRAVO, NBC, CBS and A&E. John is the expert host of the weekly WDTV News 5 segment, “Solutions 4 Financial Independence”.
As an authority on wealth management, he has been invited by hundreds of institutions such as universities, federal agencies, professional associations, and large energy and utility corporations to be a guest speaker and educational event host. Event topics include retire ready, managing down market investment risk, how to reduce your tax burden, and transferring your family wealth in the most tax advantageous way.
John is the founder and owner of Beacon Wealth Management, specializing in helping entrepreneurs, professional practitioners and retirees overcome the 5 major challenges facing success families. He is a warm communicator with a passion for helping people transform their financial futures. John understands the multifaceted set of financial worries people face as they become more successful and enter the retirement redzone. He empathizes personally with each client and delivers a collaborative client experience that empowers people to reach their life goals.
With more than two decades of experience, John’s professional credentials include Certified Wealth Strategist, Accredited Investment Fiduciary, Certified Estate Planner, Chartered Federal Employee Benefits Consultant, Professional Plan Consultant and Registered Financial Consultant. He is also a past member of Ed Slott’s Master Elite IRA Study Group.
A native of Weston, West Virginia, John served in the United States Air Force prior to becoming a Wealth Advisor. Today, he resides with his family in Clarksburg, West Virginia. He and his wife, Lisa, have been married since 2005 and have three amazing children. A family-oriented man, he enjoys giving back to his community, coaching youth sports, landscaping, architectural design, and playing racquetball.