Looking back at the past few weeks, we believe the market has made some investors nervous. Market volatility can lead to some serious stress but what are the best ways to respond to this uneasy feeling? When dealing with market volatility, it’s important to keep several things in mind to help avoid making mistakes.
Have a Plan
It’s frequently said that those who fail to plan are planning to fail. When investing, it’s important to have a plan. If your plan is to invest $1,000 or $5,000 a month stick to it. We believe slow and steady wins the race. Sticking with your plan may allow you to take advantage of the periods when the stock market is down.
Keep Reinvesting
We believe dividends and interest tend to keep coming whether the Dow Jones Industrial Average is down 500 points or it’s up 300 on a given day. It’s true that there are situations that may lead some companies to cut or suspend their dividends. However, we believe most companies will keep paying out dividends as long as possible because a cut is a sure-fire way to lose investors and see the price of your company’s stock drop like a rock. Dividends from stocks and interest from bonds are two ways to deal with volatility we believe. You should keep reinvesting the capital your investments throw off. When the market is down, you’ll be able to buy more shares, and this may help add to your flow of dividends and interest. By reinvesting during periods of volatility, you may be able to increase the power of compounding greatly.
Don’t Sell
Many financial professionals will tell you to avoid selling your investments at the worst possible time is a part of sticking with your plan. Often times we believe, this is an ideal strategy. It can be tempting to sell when the market is down 10% so that you can avoid the next 20% loss we believe. This is generally a bad idea. Time in the market will usually beat attempts to time the market. Although, one exception would be drawing down some money strategically during your golden years. You may want to make quarterly or annual withdrawals regardless of what the market is doing in that case so that you can fund your living expenses.
Rebalance
Another important step to take when the market is showing extreme volatility is remembering to rebalance your portfolio periodically. You may have a strategy of rebalancing quarterly, semiannually or yearly. If you have a target allocation of 75% of your portfolio in stocks and 25% in bonds, a major drop in stocks could leave you with 65% in stocks and 35% in bonds. In this instance, you could sell a chunk of your bonds and move the money into stocks. If you’re still in the accumulation phase, you could stop contributing to bonds and put all of your money in stocks until you reach your targeted balance. This will keep you from becoming too overweight in one area and allow you to maintain the proper level of diversification.
One big piece of advice that’s important to remember during market volatility is to stay the course. If you have a plan, stick to it. This includes making periodic investments as you would if the market were at record highs. We believe real money is made during market downturns. If your portfolio gets out of balance, it may be a good idea to rebalance it in the event of a major market downturn to take advantage of the sale price on stocks. If you have cash sitting on the sidelines, volatility to the down side can be a great time to put that money to work.
We believe planning your retirement means diversifying to reduce the risk to your overall retirement plan. We are here to help guide you to and through a successful retirement.
Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.
Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.
Million Dollar Round Table (“MDRT”) is a membership organization. Qualifying criteria for membership includes attaining specified levels of commissions earned, premiums paid or income earned on the sale of insurance and other financial products. MDRT membership requirements include the payment of annual dues, compliance with ethical standards, and maintaining good standing with an MDRT-approved professional association. The MDRT logo and/or trademarks are property of their respective owners and no endorsement of Jason Bergey or Pennsylvania Wealth Management is stated or implied. MDRT and Retirement Wealth Advisors, Inc. (RWA) are not affiliated.