When markets are choppy, maintain focus on things you can control

#financialplanning #personalfinance #marketvolatility #anxiety #coronavirus

While you can’t control the markets, here are four things you CAN control:

1. Stick with your plan... even when the market gets scary!

Don’t combine your emotions with your investment plan. Don't rush to buy or sell based on how you’re feeling. The key is to zoom out from any particular period and focus on the long-term trend. As you can see in the chart below, the Standard & Poor’s 500 Index, widely used as a proxy for the U.S. stock market, has been one long succession of volatile periods. However, despite the historical volatility, the index increased nearly 19 times in value during the period shown. Investors who jumped ship during the volatile times, by selling their stock portfolios, would have missed out on the impressive gains that followed the declines.

Sources: Vanguard calculations, using data from Lipper, a Thomson Reuters Company.

Notes: Intraday volatility is calculated as the daily range of trading prices [(high-low)/opening price] for the S&P 500 Index.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Volatility can also create a great opportunity to rebalance your strategic asset allocation. Volatility in the market might make it possible for you to sell concentrated equity positions or high-cost active holdings with no tax penalty. Together, we can plan for such opportunities and take advantage of them when they appear.

Furthermore, changing your investment mix can backfire. Consider three hypothetical investors, who took three different paths. As shown in the chart below, each had a 50% stock/50% bond portfolio during the downturn that ended in March 2009. One held tight and maintained the same portfolio, recouping the unrecognized losses in about a year and a half and enjoyed the subsequent rebound in stocks. The other two radically revamped their portfolios, one moving all to bonds and the other all to cash. Roughly ten years later, both of the latter portfolios continued to suffer the consequences, with their values remaining below their peaks. As you can see, mixing emotions with investment can lost out on great returns over time.

2. Call your trusted Financial Advisor for any concerns.

A competent financial advisor is not just there to manage your investment return but also to manage the downside risks. Speaking with your advisor about risk tolerance helps him or her better understand your investing style and what’s most important to you. Remember to set a realistic expectation with your advisor. With this greater insight, your advisor can suggest diversification options for your portfolio that blunt the impact of downturns while putting you on track to achieve your financial objectives. Your advisor should work with you to develop a plan that still achieves your goals, despite potential headwinds of lower returns.

3. Revisit your financial plan with your advisor.

Whether or not you need to relocate your investment mix lies in your financial plan. If you happen to be near retirement or in retirement, or if you simply lose sleep over downturns, you may need to reevaluate your risk tolerance. Your financial advisor can help you figure out the balance of stocks and bonds best suited for your comfort level towards risks and other personal circumstances. The following chart shows how you can position for long term success with your trusted counsel.

4. Work from home, if you can, and tune out any noise from the public.

For real! Managing your personal health and anxiety are the actual priority at the moment. It’s completely acceptable to not check your portfolio balance when the market is falling. Turning off the financial news might be smart if it keeps you from making mistakes based on emotional decisions.

"When you realize nothing is lacking, the whole world belongs to you." Lao Tzu

If you are interested in learning more about the financial planning process at KW Wealth Management, you can request a free consultation.


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Data research is provided by Vanguard Advisor's Alpha™. The information provided is for general information and educational purposes only and is not directed to any investor or category of investors. No information contained herein should be regarded as a recommendation to engage in or refrain from any investment-related course of action, and is not an undertaking to provide impartial investment advice. Individual investors should consult with a financial, legal, tax, or other personal advisor about whether any investment strategy, product or services described maybe appropriate for your individual circumstances.

All investing is subject to ris