The markets took a huge dip on June 16th, posting their worst numbers since March 2020 and officially entering bear market territory. (1) Though they have rebounded slightly in the weeks since, many investors are understandably nervous. Many are wondering if they should sell their positions and cut their losses amidst concerns of a looming recession. If you are worried about your investments, you are not alone. But panic selling is almost never the answer. During stock market volatility, it’s important to keep a level head to avoid financial mistakes. Here are 3 things to keep in mind during volatile markets.
Market Corrections Are Normal
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. 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. (2) Bear markets, characterized by a drop of 20% or more, happen roughly every 56 months. (3)
While it can be alarming to see huge sell-offs and negative numbers flashing across the screen, it’s nothing that hasn’t happened before. Sometimes the market fluctuates in reaction to a global or political event, and sometimes it’s just how the market works. The only long-term guarantee in investing is that there will be short-term fluctuations.
Stick to Your Long-Term Plan
Just because the market changes doesn’t mean your goals change. Because of this, it’s important to stick to your long-term plan rather than making dramatic changes to your portfolio in response to market fluctuations.
We understand that 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 decrease overall losses. If you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t run the risk of losing even more.
A wise investor ignores the “trees” (short-term fluctuations) and instead keeps their eyes on the “forest,” or the historic long-term market returns. Your financial plan and investment strategy should be built for the long term, with short-term volatility in mind.
It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. A decline can be upsetting, but there’s no reason to deviate from your long-term financial plan.
Despite the bad reputation that volatile markets receive, they actually present some unique opportunities if you continue to invest. Instead of selling your investments, consider buying more as all the stocks in a down market will be “on sale.” If you’ve ever heard the phrase “buy low, sell high,” a down market is the epitome of buying low.
It’s important to note that even if you enter the market at a “bad” time, with an appropriately allocated, well-diversified portfolio, it’s likely you will still do better over the long run if you stay invested versus keeping your money in cash (and subject to inflation). The uncertainties of the world shouldn’t force you to miss out on potential growth.
Over time, consistent investing will lead to growth. It’s just hard to see when you’re looking at the short-term fluctuations that happen day to day.
Do You Have Questions About Your Portfolio?
If you are worried about the recent market volatility or have concerns about your investment portfolio, we are here to help! As a full-service fiduciary financial planning firm, Horizon Planning Group has experience helping clients navigate tumultuous markets. To learn more about how we can help, schedule an introductory meeting online or reach out to me at (770) 627-4157 or Scott@MyHorizonPG.com to get started.
Scott Bechely is financial advisor at Horizon Planning Group, a full-service fiduciary financial planning firm committed to always doing what’s right for their clients. Scott uses his more than 15 years of experience to help his clients create a retirement income plan that aligns with their goals and helps them live the retirement lifestyle they dream of. He believes that everyone should have a chance to obtain financial independence, and he strives to help his clients design a plan that helps them sleep better at night knowing they’re on track for their ideal future.
Scott is a CERTIFIED FINANCIAL PLANNER™ professional who graduated magna cum laude from the University of Georgia with a bachelor’s degree in business administration, focusing on finance. Outside of work, he can often be found spending time with his wife, Sara, their daughter, Anna, and their dogs, Ginger and Bailey. He loves sports and enjoys playing in his baseball league and golfing. He gives back to his community by supporting his favorite dog rescue organizations: Adopt A Golden and Golden Retriever Rescue. To learn more about Scott, connect with him on LinkedIn.