By Matt D’Amico, CFP®, ChFC®
Recent years have seen a lot of market volatility in the investment world. If you’ve experienced anxiety about the current state of the market, you’re not alone. Major fluctuations have a way of shaking up even the most rational, level-headed financial pundits and professionals.
The history of American commodities exchanges reveals several eras marked by market volatility. Some had major impacts in the years that followed climactic events. Many more resulted in temporary downturns with more instant recoveries. But that history can be obscured when investors are in the moment and uncertain how to move forward.
This post discusses navigating market volatility in retirement and how you and your investments can stay afloat.
The Cost of Emotional Investing
Market volatility affects common investors in a variety of ways. Some are tried-and-true survivors of past downturns who don’t typically get rattled. But those who are new investors, or investors who aren’t highly active traders, can feel panicked and anxious.
When rocky markets get whipped up by media coverage and declining portfolio balances, novice traders may feel the pressure to sell off declining shares to prevent massive losses. That’s a mistake on many levels.
Emotional investing flies in the face of long-term goals. When investors ignore statistical data and sell off shares in haste, they’re behaving in the exact opposite way investment markets were built to work. Markets favor patience and consistency, even when there’s tumult. Panic and impulsiveness are investing’s biggest enemies.
Often, a commodity that suffers a steep loss on one day can produce remarkable gains as soon as the next day. Sometimes the recovery takes a little longer. But selling hastily out of fear and anxiety makes investors miss that recovery opportunity. That miscue can cost even more money in the future.
Remain calm during times of severe market volatility. Focus on the long term and the goals you want to attain. Recognize that although the marketplace has endured severe downturns in the past, endurance defines the stock market. After all, the market hasn’t gone away in over 200 years, and it remains strong today. One panic attack won’t undermine its resiliency.
Countering Market Volatility With Diversification
Financial professionals have discussed the many benefits of portfolio diversification. That’s the act of spreading your investment capital over several different types and kinds of investments.
The criteria for diversification can vary. It could mean spreading your assets across all 11 business sectors recognized by the stock market (tech, healthcare, industrials, real estate, etc.). It could mean allocating assets across different market caps, from large companies to small ones. Diversification could also mean mixing different investment instruments such as stocks, bonds, market funds, real estate, and precious metals.
Portfolio distribution during market volatility is a good idea because if a couple of sectors experience downturns, well-performing sectors can offset your overall risk. Market patterns have shown that mixing asset types (for example, relying on bonds when there’s a bear market) has kept investors afloat in difficult times.
How to Build a Portfolio That Withstands Market Volatility
No portfolio strategy is 100% risk-free, even when it is properly diversified. Still, there are steps you can take to cushion the blow of market fluctuations:
- Stay with your time horizon; focus on your long-term goals.
- Rebalance your portfolio from time to time to reflect your risk profile.
- Stick with companies that are financially strong and have survived volatility before.
- Have some liquid assets on hand for emergency funds.
- Keep your emotions under control; no panic selling or euphoric buying.
Work With a Financial Professional
At Networth Advisors, LLC, our primary focus is helping you take complicated retirement concerns—like market volatility—and turn them into simple, manageable solutions. We specialize in working with individuals and couples who are retired or approaching retirement, with a strong focus on income planning and legacy preservation.
If you’re unsure how to position your portfolio in today’s uncertain market, we’re here to help. Let’s talk about how to create a retirement plan built to weather any financial storm. To schedule a meeting, call (724) 746-3585 or email schedule@networthadvisorsllc.com.
About Matt
Matt D’Amico, CFP®, ChFC®, is a registered Investment Adviser Representative and financial advisor at Networth Advisors, LLC, a financial planning and wealth management firm in Canonsburg, PA. The firm is dedicated to helping clients enjoy a successful retirement, specializing in income planning and legacy preservation for pre-retirees and retirees. Matt excels at simplifying complex retirement concerns to help clients make smart financial decisions.
Matt discovered his passion for finance in college, inspired by a trusted mentor, and earned a degree in finance and business management from Saint Vincent College. Before joining Networth Advisors, he gained valuable experience at New York Life and MassMutual, where he obtained his Life, Accident & Health Insurance Licenses. Matt is also a CERTIFIED FINANCIAL PLANNER® professional and Chartered Financial Consultant®.
Outside of work, Matt is a sports junkie and music enthusiast. He enjoys spending time with friends, embarking on adventures with his wife, Kayla, and their mini labradoodle, Nellie. He is also the co-author of Networth for Retirement: Mapping Out Your Journey. To learn more about Matt, connect with him on LinkedIn.
