By Steve Hoover
Given the situation our world is in right now, volatile sounds like a massive understatement. In the midst of social distancing, job instability, and alarming headlines, it’s expected to ask questions such as, “Am I going to be all right?” and “How will this affect me?” These questions most likely reference our financial security, right?
While these events are not to be minimized, we can take comfort in being educated about what’s actually happening, not what the news is portraying. Here are 4 things you should do in times of market uncertainty and volatility.
1. Don’t React, Do Research
This concept applies in many areas of life, but it’s extremely valuable to remember when it comes to making any hasty changes to your financial plan. News outlets want to catch your attention, which means they are prone to exaggerate information or possibly not include comparisons that would provide clarity to what that information means. We understand it’s a little frustrating.
Here’s an example of a comparison that provides some context to how things can seem much worse than they really are. The stock market dropped 7% on March 9th, 2020, which was the largest drop in over a decade. (1) But something that was not mentioned is that the stock market prices went to the same value as they were on June 3rd, 2019. (2) Was anything important or scary happening in June? Nope. It was just market fluctuation on that day.
2. Consider Long-Term Results
Now that we have been reminded to do a little research instead of making a desperate move to potentially save our money, let’s expand on that last paragraph.
Let’s use an analogy to think of the way the stock market and our investments behave. People’s moods can fluctuate on a day-to-day basis and so can the stock market. However, if you look at the person’s personality over a long period of time, their moods average out and usually improve with maturity. This probably doesn’t apply to everyone you know, but stay with me! In the same way, there is stability in the stock market over a long period of time. The value of your investments also grow and mature with time, even with short-term ups and downs.
Here is a graph that shows this long-term stability, despite short-term market fluctuations. This is the Dow Jones Industrial Average (DJIA) over the last 30 years of how much investments are worth, which is a fair representation of the market as a whole if you are an average investor.
If you remember the 2008/2009 crash, as seen above, the market recovered really well. The market always recovers, and it will continue to do so.
3. Leave Your Money Alone
So if we take the information we know from the above two points, what’s going to happen if we ride out the waves of the stock market going up and down and keep investing consistently? We will be wealthy, financially secure and not phased by future downturns.
When the stock markets go down, you can think of it like a real Black Friday Sale or Cyber Monday Sale, where stocks and mutual funds are on sale and you’re getting the best deal on your money. However, if you choose to sell back your funds, or sticking with our example, return a previous purchase you bought for full price, you will get a fraction of your money back. You’ll lose money.
If you consistently invest and don’t take any money out until retirement, you have nothing to be concerned about. Don’t become frantic and start selling back everything you bought for a much higher price. Let it grow and mature.
4. Talk To A Professional About Risk
You can do all the research you want, but ultimately it’s extremely beneficial to talk with someone who researches this information on a daily basis and who can help answer concerns specific to your situation and phase of life.
Depending on your age and financial situation, you might not feel like you have as much time to let the market bounce back. This is why it is even more crucial to make sure the types of investments you have make sense considering your risk level. Lower-risk funds don’t go up and down as much as some other more aggressive-growth funds. This is something to discuss with a financial planner to make sure your investments are where they should be and are ready for future market swings.
We’re Here To Help!
We know you have a lot on your plate right now, so let us share your burden and ease your concerns. Our team at Wealth Partners will show you all your options for protecting your money and setting it up to succeed in any market environment. If you aren’t already a client, I’d love to hear your story and share how I can help. If you already have a plan, let’s make sure it’s still right for you. Schedule your free 15-minute introductory phone call today! Be sure to check out our podcast, The Retirement Pilot, and register for our free webinar, 10 Strategies To Reducing Unexpected Risk To Your Retirement Savings, so you can learn how to protect your wealth by expecting the unexpected.
Steve Hoover is president of Wealth Partners Corporation with over 20 years of experience in the financial industry. Steve is passionate about helping his clients take control of their finances so they can feel confident about their future. Steve has bachelor’s degrees in both journalism and Spanish literature from the University of Kansas and holds a Series 65 license in Kansas, Missouri, and Texas. He has been featured on several news outlets, received the KC Magazine Five Star Wealth Manager: Best in Client Satisfaction Award for six consecutive years, and hosts The Retirement Pilot podcast. To learn more about Steve, connect with him on LinkedIn and register for his free webinar, 10 Strategies To Reducing Unexpected Risk To Your Retirement Savings, so you can learn how to protect your wealth by expecting the unexpected.