4 Things To Do In A Volatile Market

Posted By T. Lee Sherbakoff, CPA/PFS, CFP® on Apr 13, 2020


With the way things have been going lately, volatile sounds like a massive understatement to describe our current situation. When you’re barraged daily with alarming headlines, it’s normal to start asking questions like, “Am I going to be all right?” and “How will this affect me?” And more often than not, our questions turn to financial matters: “Will my portfolio recover?” and “Will I lose income?”

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. Seek Out Objective Information

This concept applies to 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 clarify what their information means. This can be frustrating.

Here’s an example of a comparison that provides some context for 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 what wasn’t mentioned is that the stock market prices decreased to the same value as they were on January 9th, 2019. (2) Was anything important or scary happening in January? Nope. It was just how the market fluctuated on that particular day.

2. Consider Long-Term Results

Now that we know to do a little research instead of making desperate moves to potentially save our money, here’s an analogy that will give us perspective as to how 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 someone’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, the stock market is stable over 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) showing over the last 30 years of investment value, which is a fair representation of the market as a whole if you are an average investor. 

(3)

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. Keep Your Hands Off

Based on what we’ve seen in the past, what’s going to happen when we ride out the stock market roller coaster and keep investing consistently? We will experience growth, work toward financial confidence, and save ourselves a lot of stress when future downturns come.

When the stock markets go down, you can think of it like a Black Friday 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, staying 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 don’t need to worry. 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 when it comes down to it, it’s extremely beneficial to talk with someone who researches this information daily and 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 the volatile markets, among other things, are concerning, so let us help you carry the burden. Our team at Nalls Sherbakoff will show you all your options for protecting your money and setting it up to succeed in any market environment. Set up a complimentary appointment so we can see if our services are the right fit for you by calling us at (865) 691-0898 or contacting us online.

About Lee

Lee Sherbakoff is principal and financial advisor with The Nalls Sherbakoff Group, LLC, an independent, fee-only financial planning and investment management firm. He specializes in serving pre-retirees and retirees, helping them create and execute financial plans and retirement income plans that lead to sustainable long-term, real-life returns that meet their deepest and most important financial goals and objectives. Lee has a Bachelor of Science in Finance from The University of Tennessee and a Master of Strategic Studies from the U.S. Army War College as well as the Certified Public Accountant (CPA), Personal Financial Specialist (PFS), Certified Financial Planner™ (CFP®), and Retirement Income Certified Professional (RICP®) credentials. Lee spent over 31 years in the U.S. Army Reserves, including serving at the Army’s highest levels on the Department of Army staff at the Pentagon and being deployed in support of Operation Desert Storm (1991) and Operation Iraqi Freedom (2008-2009). When he’s not loyally serving his clients, Lee enjoys giving back to the community and to his profession, acting as a council member of the Tennessee Society of CPAs and a member of the American Institute of CPAs. In addition, he is past President of the Knoxville Chapter of Tennessee Society of CPAs and past President of the East Tennessee chapter of the Financial Planning Association. To learn more about Lee, connect with him on LinkedIn.

_________________

(1) https://www.wsj.com/articles/asian-stock-markets-in-early-monday-sell-off-after-saudi-arabias-decision-to-cut-most-of-its-oil-prices-11583713399

(2) https://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

(3) https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart