by Jason Vitucci, CFP® & Gene A Schnabel
It is well known that the stock market goes up, and the stock market goes down, but investors are supposed to keep their wits about them and focus on their long-term goals and hold steady.
But it can be hard to sit idly by and watch volatility in the markets—and in your portfolio—without thinking this may jeopardize your financial future.
Market volatility is, in fact, normal and it’s not the markets’ ups and downs you need to worry about—it’s your reaction to them. Making emotional decisions during times of market volatility can have negative effects on your portfolio in the long run and even potentially impact your taxes. It’s easy to say, “keep calm,” but it’s much harder to do. Even if your stomach drops with stock prices, here are three concrete steps you can take to keep calm and carry on.
- Investigate the Market Indexes
Looking at the long-term performance of investments can help make today’s volatility less worrisome. In the past investors who did not panic and stayed in the market are the ones who reaped the biggest rewards for their patience.
But stocks aren’t the only asset class you should be looking at. Bond prices and interest rates have their own stories to tell, too. Because there’s no centralized “brand name” bond tracking index like the Dow Jones Industrial Average, most bond investors look to the U.S. Treasury yield curve to help determine how bonds are doing.
About half of all U.S. households own stock shares, according to a 2017 Gallup report.2 You may own stock directly through a brokerage account, but it’s also likely that you own stocks, and possibly other investments, through your 401(k), 403(b), or other employer-sponsored retirement account. Check your account online (or request printed documents) to learn the mix of investments in any mutual funds and make an appointment with your financial advisor to discuss the pros and cons of any changes you think might benefit your future. And if you’re not already contributing the maximum allowed to any retirement plan you have, that’s one action you can take immediately that will benefit you in the years to come, regardless of where the market is today.
- Celebrate Your Successes and Look to the Future
It’s likely that when you started investing, whether individually or through contributions to your employer-sponsored retirement plan, you had considerably less than you do today, even if it’s a day when the market is down. This can give you perspective on the benefits of looking at your investments as a long-term project, rather than riding the day-to-day anxiety of the markets. As for the future, just like with anything else—work projects, vacations, even meals—planning ahead is the best antidote to worry. Plan for how you want your money to support you in the coming years, such as retirement, college tuition, a second home, or travel. Your financial professional can assist you in current budgeting for future success to support your vision for a financially healthy future.
- Consider Your Portfolio’s Asset Allocation
Your investment portfolio’s mix of stocks, bonds, and cash is something to investigate and discuss with your financial advisor as part of your long-term strategy. Conventional wisdom suggests the closer you are to retirement, the more conservative your portfolio should become. There are several factors to consider carefully to get the right mix:
- Your target retirement age and how close you are to that date
- Your life situation, including any dependents and how old they are
- Your need for ready cash (i.e., liquidity)
- Your tolerance for risk
Investors usually take these factors into account by using strategic asset allocation, which sets targets for asset classes and rebalancing portfolios regularly to the original allocations.
Riding the Storm
Remember, when the market starts jumping, the more you know, the calmer you will be. Following these three steps, you have the tools to see a clear, realistic view both of your financial situation and your future that can keep you from reacting to inevitable market movements.
If you feel that we may be a fit to work together please don’t hesitate to contact our office.
As a valued 1st Nor Cal member, we invite you to contact us for a complimentary financial analysis. We also invite you to attend any Retirement Planning workshops that we hold. For more information about our practice, or to make an appointment, please call us at (925) 370-3750 or visit our website
www.vitucciintegratedplanning.com.
2890 N. Main Street, Suite 201
Walnut Creek, CA 94597
925.370.3750
info@vitucciplanning.com Securities through First Allied Securities, a registered broker dealer, member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. Registered Investment Advisor. Investments not FDIC or NCUA/NCUSIF insured, not insured by Credit Union, may lose value. Products offered are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. 1st Nor Cal CU, Bay Area Retirement Solutions and First Allied are all separate entities. Jason Vitucci CA Insurance Lic.: 0F59894, Gene A. Schnabel CA Insurance Lic.: 0663016
2: https://news.gallup.com/poll/211052/stock-ownership-down-among-older-higher-income.aspx
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
Distributions from traditional employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.
Asset allocation, which is driven by complex mathematical models, cannot eliminate the risk of fluctuating prices and uncertain returns. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Past performance does not guarantee future results.
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