7 Tips To Make It Through A Week Of Market Turmoil
If the market roller coaster is making you lose your cool, take a deep breath and put in play these 7 tips – one for each day of the week – to deal with all the craziness the investment world can dish out.
1. Tune it out. Listening to the media’s play-by-play commentary (“Market plummets!” “Market soars!” “Global sell-off!”) will drive anyone crazy. Simple solution: turn it off and tune it out. You’re not missing anything that will help get you closer to your financial goals.
2. Sit it out. The more often you look, and the more often you trade, the worse you’ll do. The market hysteria can convince normally sane people that they need to do SOMETHING and TAKE ACTION! Actually, you don’t. Just sit still. The market will go on without you, and your portfolio will be all the better for it. The best way to deal with market declines, in the words of Vanguard Group founder John Bogle, is “to do nothing at all.”
3. You have a plan…now stick to it. Don’t let short-term gyrations divert you from your long-term path. Remind yourself where you want to be in ten, twenty or thirty years, and how the stocks you own are designed to get you there.
4. Keep telling yourself this is normal. Markets go up. Markets go down. Nothing newsworthy there. A 10% “correction” or decline happens once per year on average. It’s not newsworthy, unless you’re in the business of selling newspapers or television ratings. If you’re in the business of investing, it’s not news.
5. It’s still early in the game. Markets have scored positive returns in 27 of the last 35 calendar years. Yet, markets have been down, on average, as much as 14.2% at some point during the year before closing in the black.
6. Risk is not a four-letter word. Many clients see “risk” as a bad thing. But risk serves a very important purpose. When you take on investment risk, you earn higher returns. A “no risk” portfolio, invested in cash, CDs, or money market funds, will earn you less than 1%. Step it up a notch to Treasury bonds maturing in 10 years and you’ll make about 2%. And that’s before taxes and inflation take their bite. So why do investors want to take on risk? Because “no risk” or “low risk” investments won’t even cover your grocery bill throughout a thirty-year long retirement.
7. That’s what your advisor is for. Clients hire advisors to benefit from their expertise and experience. At no time does that count for more than during times of stress. Advisors truly earn their keep when the market gets rough. Their job is to help keep you focused on your long-term goals, and talk you down from that ledge when you can’t take any more. Vanguard researchers estimate that advisors can add 3% of additional performance each year by selecting and rebalancing assets, designing optimum withdrawal strategies and yes, stopping clients from making emotional decisions in times of market turmoil. Says Vanguard: “Advisers act as emotional circuit breakers by circumventing clients’ tendencies to run for cover in emotionally charged markets.”