By Brandon Miller, CFP
The President tweets and the markets soar. His next tweet sends the Dow toward its worst day ever. Months of astounding gains are wiped out in a single day. And before you can fully absorb what has happened, another domestic or global situation causes the market to rise and fall like a Richter scale during an earthquake swarm.
So, how do you keep calm and carry on when it comes to your investments? Here are a few suggestions:
Keep things in perspective. Simply put, volatility is a given when you are investing. Everything from political uncertainty at home or in the far corners of the world to natural disasters to breakthrough discoveries can impact investor confidence. But history has repeatedly shown us that market setbacks are typically followed by periods of recovery.
Create a goals-based plan. Instead of chasing the next great investment or bailing out when stocks tank, develop an investing strategy that centers around what you want to achieve in life. Your goals are probably more stable than the markets, so a solid plan makes it easier to weather ups and downs.
A goals-based plan also removes the temptation to try market timing, where you attempt to buy when investments are low and sell when they’re high. This is challenging, to say the least, since no one really knows where the market is headed at any given time. And it could actually end up costing you money if you get into, or out of, the market at the wrong time.
Diversify your investments. Investing in different types of assets helps spread out your risk. Often when one type of investment is down, another asset class may be experiencing banner growth. For example, bonds may offer an island of stability when stocks and other equities are plummeting. Using an asset allocation strategy, you can balance risk and reward by investing in different types of assets in portions that make sense for your goals, risk tolerance and time horizon.
Invest regularly. One of the smartest ways to combat market uncertainty is to create a regular investment schedule. You can choose any interval that works for you—weekly, monthly, quarterly or per paycheck. The beauty of this strategy is that you invest during both peaks and valleys, which helps to even things out. And this disciplined approach helps to ensure that short-term downturns have minimal impact on your portfolio’s ultimate performance.
Review your investments often. The world is always changing and your investments may need to change too, to reflect new realities. An annual review of your portfolio can help to make sure your investments take advantage of new opportunities, while still aligning with your ultimate investment goals.
Turn to the professionals. You may have read through all of these suggestions and still not be totally comfortable making important investment decisions yourself. No worries. A financial planner can help you to sort through the myriad options and to create an investment strategy that works best for you.
If you are nervous about your investments, especially when the market makes a major correction and drops precipitously, you might be in the wrong ones. A financial professional can help you to find assets that are a better fit for your risk tolerance. They can also make sure your investments reflect your values (keeping gun investments out of your portfolio, for example), and advance you toward your goals.
Whether you turn to professional help or invest on your own, the main thing to remember is that a solid financial plan that is based on your goals provides one of the best antidotes to the anxiety caused by a roller-coaster investment market.
Given that the tweeter-in-chief has almost three more years remaining in his term, creating a solid financial plan now may save you from an ulcer later.
Brandon Miller, CFP® is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
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